Lowe’s Profit Tops Estimates as Chain Endures Winter

Lowe’s Cos., the second-largest U.S. home-improvement retailer, posted first-quarter profit that topped analysts’ estimates as better merchandising choices helped it withstand weaker demand caused by harsh weather.

Net income in the quarter ended May 2 increased 16 percent to $624 million, or 61 cents a share, from $540 million, or 49 cents, a year earlier, the Mooresville, North Carolina-based retailer said today in a statement. Excluding some items, profit was 62 cents a share. Analysts projected 60 cents, the average of 25 estimates in a Bloomberg survey.

Chief Executive Officer Robert Niblock has added workers to stores and introduced merchandise with wider profit margins as rising home prices spur people to spend more on their homes. While the long winter held sales at Lowe’s established stores to a 0.9 percent gain, trailing the 5 percent increase analysts estimated, Lowe’s maintained its forecast that revenue by that measure would advance 4 percent this year.

“Consumers continue to have an increased willingness to invest in their homes” because home prices keep rising, Niblock said in a telephone interview. Real estate values have room for more appreciation as the economy improves, he said.

Lowe’s shares fell 0.2 percent to $45.41 at the close in New York. The stock has declined 8.4 percent this year, compared with a 5.2 percent drop for Home Depot Inc. and a 2.1 percent gain for the Standard & Poor’s 500 Index.

Profit this year will be $2.63 a share, the company said. That’s up from a previous projection of $2.60. Analysts estimate $2.62.

Home Depot

Home Depot, the largest U.S. home-improvement retailer, reported somewhat similar results yesterday. While first-quarter sales and profit trailed analysts’ estimates, ending six straight years of exceeding or meeting projections, the chain reiterated its forecast that revenue would gain 4.8 percent this year and boosted its projection for profit.

Total sales at Lowe’s last quarter rose 2.4 percent to $13.4 billion, trailing analysts’ $13.9 billion average estimate. Same-store sales fell 5 percent in the U.S. Northeast due to the extended winter weather, the company said. The chain, which has about 430 fewer stores than Home Depot, also maintained its forecast for an annual revenue gain of 5 percent.

‘Biggest Impact’

“The single biggest impact on the first quarter was weather and the delayed spring,” Niblock said. He pointed out that the company missed sales expectations last year, still reiterated its annual forecast and ended up topping it.

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 stores, out of bankruptcy for about $205 million.

When it comes to the housing market, both chains care most about home values because they give people the confidence and incentive to do renovations and make repairs.

“Their definition of the housing market is very, very different,” said Robin Diedrich, an analyst with Edward Jones & Co. in Des Peres, Missouri. The gains in prices, along with low interest rates and better weather are “good reasons to be fairly optimistic that the housing market can continue to chug along.”

Slowing Demand

Sales of previously owned homes fell to the slowest pace in 20 months in March and purchases of new houses sank 14.5 percent from February, according to reports last month. Mortgage applications to buy homes plunged 19 percent from a year earlier, indicating slowing demand during what is typically the busiest season for deals.

Economists have been questioning whether the pullback is a result of the unusual weather or the waning of outside influences that fueled the rally. The average 30-year, fixed-rate mortgage rate was 4.2 percent in the week ended May 15, up from 3.51 percent in the comparable week a year earlier, according to Freddie Mac.

Also, the investors who helped drive up prices in the past two years by buying homes and converting them into rentals are finding fewer distressed properties on the market.

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