Lowe’s: Blame housing market for slow sales

Source: MarketWatch
By Andria Cheng, MarketWatch

NEW YORK (MarketWatch) — Lowe’s Cos. shares saw their biggest decline since August 2009 on Monday as the No. 2 U.S. home-improvement retailer said sales trends slowed toward the end of the first quarter and management cut its outlook for the year. First-quarter same-store sales also missed Wall Street’s expectations, even though its /quotes/zigman/232508/quotes/nls/low LOW -0.43% profit rose more than expected on expense control. While the broader markets traded higher, Lowe’s shares fell 9.4% to $25.80, making them the biggest decliner in the S&P 500 index and marking their sharpest pullback since a 10.3% drop on Aug. 17, 2009. Larger rival Home Depot Inc. /quotes/zigman/229488/quotes/nls/hd HD +1.37% , which reported a 28% first-quarter profit increase last week, rose less than 1%. Home Depot’s performance has continued to outpace that of Lowe’s, analysts said. Still, both home-improvement retailers continued to share similar concerns about uncertainty in the housing market, with Home Depot saying its growth would more likely reflect of the rate of growth in gross domestic product than a housing market recovery. Like Lowe’s, Home Depot’s first-quarter sales and margins as well as its outlook also came in short. See related story on Home Depot. Robert Niblock, Lowe’s chief executive, said on a conference call on Monday that while consumer demand has picked up recently, it has been driven by unseasonably warm weather. Without real income growth for consumers, spending also will likely level off, he said. On the housing front, Niblock said an improvement in housing turnover was off a small base. While prices for non-distressed properties appear to have stabilized, high-level distressed properties remain a concern, he said. “We continue to maintain a cautious view of the housing and macro demand environment, and our guidance reflects that view,” Niblock said on the call. “Future uncertainties are still weighing heavily on the consumer.” Lowe’s also said it’s making tough decisions to look at its expenses after it announced moves to shut 20 underperforming stores last year and slow new store growth. It’s also reducing promotions to focus on an everyday-low-price strategy while giving a 5% discount on transactions using its store card to lift traffic and purchases. The company’s first-quarter profit rose 14%, helped by warmer weather that lifted demand for seasonal products. However, the retailer said seasonal item sales slowed toward the end of the quarter ended May 4. The company sees profit of $1.73 to $1.83 a share for the year, 2 cents lower from its February projection. Sales are expected to rise 1% to 2%, with comparable sales expected to increase 1% to 3%. Analysts surveyed by FactSet Research were looking for a full-year profit of $1.87 a share, on average. Profit last quarter rose to $527 million, or 43 cents a share, from $461 million, or 34 cents, a year earlier, the Mooresville, N.C.-based company said. Quarterly sales climbed 7.9% to $13.15 billion, including a calendar shift that aided sales by $514 million and profit by 5 cents a share. Excluding a one-cent charge tied to a reduction of U.S. headquarters staff, Lowe’s said it would have earned 44 cents a share. That topped the 42-cent average analyst estimate. Sales also exceeded the consensus estimate of $13 billion. Comparable sales rose 2.6%, missing the 5.4% gain analysts were looking for. They rose 2.7% in the U.S. Transactions on a comparable basis rose 2.6% while average ticket spent was flat. The company also attributed sales gains to its 5% card discount program. Lowe’s has 1,745 stores in the U.S., Canada and Mexico. ‘Reminder that turnarounds are bumpy’ During the quarter, 11 of 15 product categories showed positive same-store sales growth, led by items such as tools, outdoor power equipment, paint, lumber, lawn mowers, and mulch. Within indoor products, gains in interior paints and applicators, ceiling fans and light bulbs were hurt by weak demand for appliances, cabinets and countertops as the company reduced promotions. Demand for bigger-ticket items, while stable, also continues to be “constrained,” Lowe’s said on the call. “These results will be construed as a disappointment considering the really good weather, which clearly helped seasonal categories and the relatively strong (comparable) sales” at Home Depot, said Janney Capital analyst David Strasser. “The high expectations of a housing recovery appear unwarranted, and the recovery seems slow in coming. This is a reminder that turnarounds are bumpy.” Gross margin narrowed to 34.70% in the latest quarter from the prior year’s 35.44%, hurt by the 5% discount program. That also missed expectations. Selling, general and administrative expenses declined to 24.65% of sales from 25.60%. “We continue to like this story, as we like the oligopoly nature of the segment, the upside opportunity if and when housing recovers and the market share opportunities from Sears” Holdings Corp. /quotes/zigman/95136/quotes/nls/shld SHLD +1.41% , the biggest U.S. appliance seller, said Credit Suisse analyst Gary Balter. “Lowe’s has embarked on a multi-year reset of its stores, changing how its displays everything from end caps to how it empowers employees.”

URL to original article: http://www.builderonline.com/builder-pulse/lowe-s--blame-housing-market-for-slow-sales.aspx?cid=BP:052212:JUMP

For further information on Fresno Real Estate check: http://www.londonproperties.com