UPDATE 2-Lowe's raised forecast falls short of analysts' estimates

Dhanya Skariachan
Wednesday, 20 Nov 2013 | 8:48 AM ET

(Adds sales outlook, analyst comment)

Nov 20 (Reuters) - Lowe's Cos Inc's quarterly profit just missed Wall Street estimates, and the No. 2 home improvement chain did not raise its fiscal-year outlook as much as analysts had hoped, sending its shares lower.

Wednesday's news came the day after strong results from larger rival Home Depot Inc, which increased its forecast for the year for the third time in three quarters as rising housing prices encouraged more people to invest in their homes.

Lowe's results highlight the company's struggles in catching up with Home Depot and made some analysts wonder if rising interest rates would take some steam out of the recent housing market rebound that has encouraged homeowners to take up more expensive remodeling projects.

"In addition to missing earnings-per-share estimates, interest rates are rising and housing is slowing, calling into question continued outperformance in this space in 2014," Janney Capital Markets analyst David Strasser said.

Even though Lowe's issued an outlook below analysts' estimates, Chief Executive Officer Robert Niblock said the home improvement industry was poised for growth this quarter and for "further acceleration" in the next fiscal year.

Lowe's, once a Wall Street darling, is not just a victim of the vagaries in the housing market. It was slower than Home Depot to cut costs during the most recent U.S. recession.

Some analysts also say Home Depot will continue to outperform Lowe's on the sales front for a while, in part because it derives much more revenue from the key contractor and professional customer group.

These customers account for 35 percent of Home Depot's sales, compared with 25 percent at Lowe's. Some analysts say it is hard to close that gap quickly because Home Depot has more stores than Lowe's in major metropolitan areas, where many of the professional contractors are based.

Lowe's shares were down 2.9 percent at $48.95 in premarket trading on Wednesday.


Sales at stores open at least a year rose 6.2 percent in the third quarter ended Nov. 1. It was the 18th straight quarter that Lowe's posted weaker same-store sales than Home Depot.

In recent years, Home Depot has benefited from efforts to improve customer service and win shoppers with more compelling prices than its rivals. It has tailored its marketing to local areas, centralized distribution centers and shifted more workers to jobs where they serve shoppers directly.

After losing share to Home Depot for several quarters, Lowe's laid out a turnaround plan, offering everyday low prices and products targeted to specific geographic markets.

Lowe's also made its stores more appealing with improved signs, television displays that stream videos on how-to-do projects, and lower racks to make items easier to reach.

For the fiscal year ending Jan. 31, Lowe's raised its earnings forecast to about $2.15 a share from $2.10. However, the new outlook fell short of the analysts' average estimate of $2.19, according to Thomson Reuters I/B/E/S.

The retailer also increased its outlook for sales growth for the year to about 6 percent from 5 percent.

Net earnings in the third quarter rose to $499 million, or 47 cents a share, from $396 million, or 35 cents a share, a year earlier. Analysts were expecting 48 cents a share.

Sales increased 7.3 percent to $12.96 billion, topping the analysts' average estimate of $12.72 billion.

(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn)

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