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Lowe’s Falls After Clearance Sales Hurt Profitability

Lowe’s Cos. (LOW), the second-largest U.S. home-improvement retailer, tumbled the most in six months after forecasting profit this year that trailed analysts’ estimates amid sales to clear slower-moving merchandise.

Lowe’s dropped 4.8 percent to $35.86 at the close in New York, the biggest decline since Aug. 20. The shares have gained 1 percent this year, compared with a 4.3 percent gain for the Standard & Poor’s 500 Index.

Chief Executive Officer Robert Niblock is revamping the retailer’s merchandising strategy after trailing larger Home Depot Inc. (HD) in sales growth. As Lowe’s stores give greater prominence to faster-selling items such as cleaning supplies, clearance sales of older merchandise are hurting profit, Niblock said.

“We are still having to clear that excess inventory,” he said today in a telephone interview. “Generally when you are selling through those, you are marking them down.”

Profit this year will be about $2.05 a share, the Mooresville, North Carolina-based company said today in a statement. Analysts’ estimated $2.10, on average.

Spending on store improvements and hiring also will weigh on profitability in 2013, Chief Financial Officer Robert Hull told analysts today on a conference call.

Photographer: Daniel Acker/Bloomberg

Vehicles sit outside a Lowe's store in East Peoria, Illinois. Close

Vehicles sit outside a Lowe's store in East Peoria, Illinois.

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Photographer: Daniel Acker/Bloomberg

Vehicles sit outside a Lowe's store in East Peoria, Illinois.

Fourth-quarter net income fell 11 percent to $288 million, or 26 cents a share, from $322 million, or 26 cents, Lowe’s said. Analysts projected 23 cents, the average of 24 estimates in a Bloomberg survey.

Sales at stores open at least a year increased 1.9 percent as builders started single-family housing at the fastest rate in four years and homeowners in the northeastern U.S. made repairs after Hurricane Sandy.

Disappointing Margins

“Sales were above expectation, helped by Sandy, but gross margin was a bit of a disappointment,” Robin Diedrich, an analyst at Edward Jones & Co. in Des Peres, Missouri, said today by telephone. She recommends buying Lowe’s.

Diedrich had projected gross margin of 34.5 percent, higher than the 34.3 percent it reported. Gross margin is the portion of sales left after subtracting the cost of goods sold.

Lowe’s also said today it authorized a new $5 billion share buyback program that it expects to use in the next two years.

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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