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Lowe's rides housing recovery to higher 2Q profit

AP with CNBC
Wednesday, 21 Aug 2013 | 6:38 AM ET
Scott Eells | Bloomberg | Getty Images

Lowe's second-quarter net income rose 26 percent, buoyed by the housing market's ongoing recovery.

The second-largest home-improvement chain's results beat Wall Street expectations. It also raised its full-year earnings and revenue forecasts Wednesday. After the earnings announcement, the company's shares rose in pre-market trading. (Click here to get the latest quotes.)

On Tuesday, rival Home Depot said a recovery in the U.S. housing market helped the retailer beat quarterly profit and sales estimates, prompting the world's largest home improvement chain to raise its outlook for the fiscal year.

(Read more: Home Depot reaps benefits from US housing rebound)

"People are feeling fairly bullish about the do-it-yourself retailers and their prospects," Budd Bugatch, director of furnishings research at Raymond James & Associates, told CNBC's "Squawk Box" on Wednesday. "Housing is certainly important part of that. So is the improvement in GDP, although that's moderated a bit."

Lowe's reports upbeat quarter, raises forecast
Budd Bugatch, Raymond James, dissects the home improvement company's Q2 earnings beat of $0.88 EPS on revenues of $15.7 billion.

For the period ended Aug. 2, Lowe's earned $941 million, or 88 cents per share. That's up from $747 million, or 64 cents per share, a year ago. Revenue increased 10 percent to $15.71 billion from $14.25 billion.

Analysts surveyed by FactSet expected earnings of 79 cents per share on revenue of $15.07 billion.

Meanwhile, sales at stores open at least a year climbed 9.6 percent. "The number was significantly better" than our expectations, Bugatch of Raymond James said.

(Read more: Time to 'dabble' in home builders?)

Lowe's has revamped its pricing structure, offering what it says are permanent low prices on many items across the store instead of fleeting discounts. It has also focused on hiring more workers and improving its inventory.

Lowe's now anticipates fiscal 2013 earnings of about $2.10 per share, with revenue up approximately 5 percent. The company previously predicted earnings of about $2.05 per share, with revenue up approximately 4 percent. Based on 2012's revenue of $50.52 billion, the new outlook implies about $53 billion in revenue. Wall Street expects earnings of $2.10 per share on revenue of $52.17 billion.

Lowe's announced Tuesday that its acquisition of Orchard Supply Hardware has received approval from the U.S. Bankruptcy Court in Delaware.

Orchard is a Sears spinoff that filed for bankruptcy in June. That same month the San Jose, Calif., company received an approximately $205 million offer from Lowe's for 72 of its stores. The "stalking horse" bid also included the assumption of payables owed to nearly all of Orchard's suppliers.

Lowe's expects to close on the buyout by month's end. Orchard will continue to run as a separate, standalone business. It will keep its brand name, as well as its San Jose headquarters.

Lowe's, based in Mooresville, N.C., had 1,758 stores in the U.S., Canada and Mexico at quarter's end.

—By CNBC and AP

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