Lowe’s Surges as Housing Recovery Boosts Profit

Lowe’s Cos. (LOW) surged the most in more than three years after fiscal third-quarter profit topped analysts’ estimates, helped by better merchandising decisions and the recovering U.S. housing market.

Lowe’s, the second-largest U.S. home-improvement retailer, advanced 6.2 percent to $33.96 at the close in New York, the biggest gain since May 2009. The Mooresville, North Carolina- based company’s shares had risen 26 percent this year through Nov. 16.

Chief Executive Officer Robert Niblock increased sales at established stores 1.8 percent, beating analysts’ estimates, while trimming promotions and eliminating slow-selling items in flooring and other departments. Consumers also spent more as accelerating home sales and construction showed the U.S. housing market is recovering.

“It is a validation of what we’ve been doing,” Niblock, 50, said today in a telephone interview. “The bottoming of home values gives that homeowner psychological permission to spend on their homes again.”

Net income in the quarter ended Nov. 2 rose 76 percent to $396 million, or 35 cents a share, from $225 million, or 18 cents, a year earlier, Lowe’s said today in a statement. Excluding some items, profit was 40 cents a share. Analysts projected 35 cents, the average of 15 estimates compiled by Bloomberg.

Sales rose 1.9 percent to $12.1 billion, topping analysts’ $11.9 billion average estimate. Analysts had projected sales would increase 0.8 percent at stores open at least a year, according to Retail Metrics.

Housing Recovery

Sales of previously owned U.S. homes climbed 2.1 percent in October to a 4.79 million annual rate, exceeding the median forecast of economists surveyed by Bloomberg, figures from the National Association of Realtors showed today in Washington. The median price rose 11.1 percent from a year earlier to $178,600 as inventories dropped to the lowest level since December 2002.

Housing starts in September jumped 15 percent to the fastest rate since July 2008, a report last month showed. Beginning construction rose to an 872,000 annual rate, exceeding all forecasts in a Bloomberg survey, Commerce Department figures showed.

The gains also have benefited Home Depot Inc. (HD) The largest U.S. home-improvement retailer last week said net income climbed 1.4 percent to $947 million. Profit excluding some items topped analysts’ estimates, and sales rose 4.6 percent.

Margin Widens

Lowe’s gross margin, the portion of sales left after subtracting the cost of goods sold, widened to 34.3 percent from 34.1 percent a year earlier. Selling, general and administrative expenses declined 6.5 percent to $3.02 billion after the retailer cut more than 500 corporate jobs this year, closed 27 U.S. stores and canceled plans for new locations.

“Lowe’s made progress on recovering some of the gross margin lost over the last year, and comps were up,” Greg Melich, an analyst at International Strategy & Investment Group in New York. He rates the shares hold.

To contact the reporter on this story: Chris Burritt in Greensboro at cburritt@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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