Lowe's Cos., the industry's second-largest home-improvement retailer, got a boost from the sale of seasonal merchandise, as well as from federal tax rebates that gave its customers some temporary spending power, which led to a 2.4 percent increase in the company's revenue, to $14.51 billion, during the three months ended August 1. This was the first time in three reporting periods that Lowe's sales have grown over the same quarter the previous year.
Equally significant was Lowe’s net income during the quarter, which fell by 7.9 percent to $938 million. That decline was more modest than what analysts—and, apparently, some company officials—had expected, and in sharp contrast to what analysts are predicting about the dealer’s rival, Home Depot, which they expect will report lower-than-expected quarterly earnings when its numbers come out tomorrow.
Also noteworthy was the fact that Lowe’s did not lower its guidance for future sales and profit, which it had done over the past few quarters. Lowe’s CEO, Robert Niblock, pointed specifically to the retailer’s cost control as an enabling factor in its profit performance, even though its selling and general administrative expenses, at 20.78 percent of revenue during the quarter, were slightly higher than the same period a year ago.
Through the first six months of its fiscal year, Lowe’s, which is based in Mooresville, N.C., profit was down 12.1 percent, to $1.545 billion, on revenue of $26.52 billion, which was marginally better than the first half of 2007. Larry Stone, the retailer’s COO, told analysts during a teleconference this morning that his company had seen stability in its sale of maintenance and repair products, which could reflect market conditions where more homeowners are fixing up their houses rather than moving.
During its latest quarter, Lowe’s opened 23 stores, bringing its total as of August 1 to 1,577 units in North America. This fiscal year, Lowe’s expects to open a total of 120 stores (down from earlier projections of 140), and that its sales for stores opened at least a year would be down between 6 percent and 7 percent. (Lowe’s same-store sales for the latest quarter were off 5.3 percent.)
Niblock told analysts that his company remains “cautious” about future business, particularly in light of the fact that Lowe’s sales of big-ticket projects continue to lag, in line with the nagging housing downturn. “Macroeconomic factors pressuring consumers”—including foreclosures, more expensive mortgage rates and a now-stingy credit market—“and the ongoing challenges and uncertainty of the financial markets suggest a cautious sales forecast for the balance of fiscal 2008 is prudent," said Niblock.
John Caulfield is senior editor at BUILDER magazine.
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