Lowe’s CEO Remains Housing Bull Despite Forecast Cut

Lowe’s Cos. (LOW) Chief Executive Officer Robert Niblock remains optimistic about the U.S. housing recovery, even after trimming the annual sales forecast for the second-largest U.S. home-improvement chain.

A harsh winter and spring’s late arrival subdued the retailer’s sales in the first quarter. While the chain regained most of that missed revenue in May, June and July, weather disrupted its business again as one of the coolest summers in years sunk sales of air conditioners.

With second-quarter revenue trailing its expectations, Lowe’s cut its full-year outlook to a gain of 4.5 percent, down from 5 percent in May. However, the retailer’s assumptions for the rest of the year are unchanged as further increases in home prices and job creation fuel renovations. The chain maintained its annual profit forecast of $2.63 a share.

“We are still bullish on the outlook for the industry, which gives us confidence in our guidance for the back half of the year,” Niblock said in an interview. “With continued appreciation in homes, homeowners have increased willingness to engage in discretionary projects -- many of them projects that they put off in a downturn.”

Larger rival Home Depot Inc. hit an all-time high yesterday after keeping its full-year sales outlook of 4.8 percent growth, while boosting its earnings forecast, helped by an increase in share buybacks. Investors saw the results as an encouraging sign for the home-improvement industry, sending Lowe’s shares higher.

Shares Rebound

Today Lowe’s rose 1.6 percent to $52.33 at the close in New York after falling as much as 3.5 percent earlier following its financial results.

“When you read about lower guidance on a press release it can affect the stock, but when any company can then explain their thought process that can often help,” David Schick, an analyst at Stifel Financial Corp., said in an interview. He recommends holding Lowe’s shares.

The Mooresville, North Carolina-based retailer also reported that net income in the quarter ended Aug. 1 rose to $1.04 billion, or $1.04 a share, from $941 million, or 88 cents, a year earlier. Analysts on average projected earnings of $1.03 a share, according to data compiled by Bloomberg. Sales rose 5.7 percent to $16.6 billion, matching the average estimate.

Same-store sales, considered an important measure of performance because only established stores are counted, advanced 4.4 percent. Analysts expected a gain of 4.1 percent, based on estimates compiled by Consensus Metrix.

Cool July

The decline in sales of air conditioners lowered revenue by that measure by 0.3 percentage point during the quarter, a period that included the coolest July in the U.S. since 2009, according to the National Oceanic and Atmospheric Administration.

Purchases of appliances also fell compared with a year earlier, when the category was strong with sales growth at a high-teen percentage rate, Lowe’s said.

Both Home Depot, based in Atlanta, and Lowe’s view real estate prices as a key indicator for growth because rising values prompt consumers to spend more on their homes.

While values have been consistently gaining for more than two years, the growth slowed to a 4.4 percent advance last quarter from an increase of 8.8 percent in the first quarter, according to the National Association of Realtors. Price appreciation is moderating as more properties are listed for sale and buyer demand slows, the group said.

Lowe’s stock had risen 18 percent in the 12 months through yesterday, while Home Depot increased 17 percent. That compared with a 20 percent gain in the Standard & Poor’s 500 Index.

Limited credit availability and weak wage gains have been obstacles to what has been an uneven housing recovery.

A potential catalyst for Lowe’s and Home Depot will be sales of existing homes, which could take off if mortgage rates remain low or decline, said Schick, the analyst. Purchases of that nature rose 2.6 percent in June for the biggest gain in eight months.

“That’s the opportunity for a more sustained cycle of home improvement,” Schick said. “There’s another gear that can hit for these companies.”

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net Cecile Daur, John Lear

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