Lowe’s Cos. (LOW), the second-largest U.S. home-improvement chain, posted a 6.3 percent profit gain as the housing rebound spurred renovation spending. The company also announced a plan to buy back $5 billion in shares.
Fourth-quarter net income increased to $306 million, or 29 cents a share, from $288 million, or 26 cents, a year earlier, the Mooresville, North Carolina-based retailer said today in a statement. Excluding some items, profit was 31 cents a share in the period, which ended Jan. 31. That matched the average of 24 analysts’ estimates compiled by Bloomberg.
Chief Executive Officer Robert Niblock has added workers at Lowe’s busiest times to take advantage of a surge in home renovations, fueled by rising property values and increasing purchases of new homes. Sales at locations open at least a year rose 4.8 percent for the year and 3.9 percent in the fourth quarter.
“This was a solid quarter,” Robin Diedrich, an analyst with Edward Jones & Co. in Des Peres, Missouri, said today in a note to clients. “The company’s core home-improvement categories posted strong performance, which offset weak seasonal gift sales.”
Lowe’s rose 5.4 percent to $50.72 at the close in New York. The Standard & Poor’s 500 Index traded above its record closing level as an unexpected increase in new-home sales bolstered optimism in the economy.
Fourth-quarter revenue climbed 5.6 percent to $11.7 billion, matching analysts’ average estimate. Same-store sales advanced 3.9 percent.
Profit this year will be about $2.60 a share, Lowe’s said today. Analysts had projected $2.64 on average. The retailer also forecast same-store sales would gain 4 percent. While the company described the outlook as cautious, since the fiscal year ended in February 2006, that growth would only be surpassed by last year’s 4.8 percent increase.
“Some of the recent housing and jobs data has softened a little bit, but we still think the consumer is going to be there and 2014 is going to be a great year,” Niblock said in an interview. “It made more sense to come out slightly more cautious with our guidance and then deliver numbers above.”
Home Depot (HD), the largest U.S. home-renovations chain, said yesterday that it expected the housing recovery to continue boosting its results. Same-store sales will increase 4.6 percent in the current fiscal year, the Atlanta-based company said. Since the fiscal year ended January 2005, that would only be bested by last year’s 6.8 percent gain. The chain’s fourth-quarter profit also topped analysts’ estimates, marking six straight years of exceeding or meeting projections.
Lowe’s also said today that its board approved the $5 billion share repurchase, which comes in addition to the $1.3 billion remaining on its current authorization.
Like Home Depot, Lowe’s growth strategy has shifted to boosting sales at current stores rather than opening new locations. The one recent exception came last year, when Lowe’s bought the majority of Orchard Supply Hardware Stores Corp.’s assets, including 72 locations, out of bankruptcy for about $205 million. Lowe’s said today it plans to add about 15 home-improvement and five hardware stores in its current fiscal year.
Lowe’s has been revamping its product lines to remove items that were less profitable or took longer to sell. Those moves should continue to benefit the company as the economy improves, Keith Hughes, an analyst at SunTrust Banks Inc. in Atlanta, said in a phone interview before the results were released.
The chain should receive another boost because it focuses more on premium goods than Home Depot and shoppers often trade up to higher-priced items as consumer confidence increases and incomes rise, he said. In the fourth quarter, same-store sales gains were driven by purchases above $500 that rose 8.9 percent, Niblock said. That more than doubled the total gain.
“Lowe’s has played at the high end, and Home Depot has played at the low end,” Hughes said. “That has helped Home Depot, but that advantage should flip to Lowe’s.”
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