Lowe’s Cuts Sales Forecast on Weak Air-Conditioner Sales

Aug. 20 (Bloomberg) -- Janney Montgomery Scott Analyst David Strasser discusses Lowe’s earnings and his outlook for home-improvement retailers on “Bloomberg Surveillance.” (Source: Bloomberg)

Lowe’s Cos. (LOW), the second-largest U.S. home-improvement retailer, trimmed its full-year revenue forecast after weaker-than-anticipated sales of air conditioners in the cooler summer.

Full-year sales will rise about 4.5 percent, Lowe’s said today, less than a previous prediction of 5 percent. The shares dropped 2.5 percent to $50.26 at 9:54 a.m. in New York.

The shortfall came from the second quarter, which was also hit by disappointing sales of appliances amid increased competition, while the forecast for the second half of the year is unchanged, Lowe’s said on a conference call. The retailer is cutting its annual revenue outlook amid rising consumer spending in the U.S. and a housing recovery that remains uneven.

“Economic forecasts suggest continued strength in the home improvement market as employment, income, and consumer spending levels continue to improve,” Chief Executive Officer Robert Niblock said on the call. “At the same time, signals from the housing market appear mixed.”

Last quarter, Lowe’s did get back most of the sales missed during the first quarter because of a harsh winter and late spring. The retailer maintained its full-year earnings outlook, through cost reductions and productivity gains.

Photographer: Davis Turner/Bloomberg

Lowe's Cos. Chief Executive Officer Robert Niblock has added more workers to stores and merchandise with wider profit margins as rising property prices spur people to spend more on their homes. Close

Lowe's Cos. Chief Executive Officer Robert Niblock has added more workers to stores and... Read More

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Photographer: Davis Turner/Bloomberg

Lowe's Cos. Chief Executive Officer Robert Niblock has added more workers to stores and merchandise with wider profit margins as rising property prices spur people to spend more on their homes.

Home Depot

Larger rival Home Depot Inc. yesterday kept its full-year sales outlook of 4.8 percent growth, while boosting its earnings forecast, helped by an increase in share buybacks.

In the quarter ended Aug. 1, Lowe’s net income 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, the Mooresville, North Carolina-based retailer said, matching the average estimate,

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

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.

Limited credit availability and weak wage gains have been obstacles to what has been an uneven housing recovery. On the plus side, a strengthening job market and cheaper borrowing costs are giving the market momentum. Yesterday, the Commerce Department reported a surge in construction as July housing starts jumped 15.7 percent to an 1.09 million annualized rate, the strongest since November.

Lowe’s shares gained 18 percent in the 12 months through yesterday. while Home Depot gained 17 percent. That compares with a 17 percent advance for Home Depot and a 20 percent increase for the Standard & Poor’s 500 Index.

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, James Callan

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