Lowe’s Lags Behind Home Depot With Disappointing Sales Growth

Target Cuts Forecast, Lowe's Disappoints on Profit
  • Second-quarter earnings come in well below analysts’ estimates
  • Same-store sales rise 2%, trailing Home Depot’s 4.7% increase

Lowe’s Cos. is losing ground to Home Depot Inc. in its bid to capitalize on the U.S. home-renovation boom.

The company reported disappointing second-quarter sales growth and earnings that fell well below analysts’ estimates, a sign Lowe’s isn’t containing expenses as well as its larger rival. Profit was $1.37 a share, excluding some items, in the quarter ended July 29. Analysts had estimated $1.42 on average.

The results contrasted with those of Home Depot, which met analysts’ expectations and boosted its annual profit forecast on Tuesday. Home Depot said it remained confident that rising home values would keep pushing people to spend on their properties. Lowe’s lackluster earnings also marked a turnabout from the first quarter, when the company outperformed Home Depot.

Lowe’s shares fell as much as 5.8 percent to $76.73 in New York trading on Wednesday, their worst intraday performance since February. The stock had gained 7.2 percent this year through Tuesday, while Home Depot climbed 3 percent.

Sales at Lowe’s stores open for more than a year rose 2 percent, down from the previous quarter’s 7.3 percent gain and missing analysts’ 4.1 percent average estimate, according to Consensus Metrix.

Home Depot

That means Lowe’s once again failed to show as much growth as Home Depot, which posted an increase of 4.7 percent last quarter. Since 2009, Lowe’s has only topped Home Depot twice in same-store sales, including the first quarter of this year. Analysts have said Lowe’s has been hurt by inferior locations and a relative lack of stores in the Northeast.

Total revenue climbed 5.3 percent to $18.3 billion, trailing analysts’ $18.4 billion projection. The figure got a boost from the addition of Canadian home-improvement store chain Rona Inc., which Lowe’s bought in May for about $2.6 billion.

Sales fell in northern U.S. markets after an early spring pulled purchases for outdoor projects into the first quarter, Lowe’s said. While last quarter’s sales fell below projections, the first half of the year still has the company on course to meet its annual forecast.

Housing Prices

The overall environment has been favorable for home-improvement stores because renovation spending is driven by housing prices, and they’ve continued to gain this year. The 20-city property values index increased 5.2 percent from May 2015 after climbing 5.4 percent in the year through April, according to S&P CoreLogic Case-Shiller data released last month.

Lowe’s, based in Mooresville, North Carolina, forecast profit this year would be $4.06 a share. Analysts estimate $4.04. The two figures may not be comparable.

“We are well positioned to capitalize on a favorable macroeconomic backdrop for home improvement in the second half of this year,” Chief Executive Officer Robert Niblock said in the statement.

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