The dismal housing market dragged down fourth-quarter profits at Lowe's by 60 percent, and executives at the home improvement chain said they see little hope of a substantive fix from a federal effort aimed at helping struggling homeowners.
To cope in the worsening recession, Lowe's said it was further cutting back the number of stores it plans to open in 2009 and offered a profit forecast for the year that was short of Wall Street's expectations. The news sent the company's shares down almost 7 percent.
The nation's second largest home improvement chain said consumers continued to shy away from big-ticket items such as new flooring, appliances and cabinetry, particularly as they try to shore up their savings and find it more difficult to tap into home equity lines of credit.
Sales of discretionary categories—particularly for items such as home organization, plumbing, lighting, and windows and walls categories—fell to decade lows.
More than 2 million households received foreclosure filings last year and some economists estimate as many as one in four homeowners owe more money on their mortgages than their properties are worth. President Barack Obama has proposed a $75 billion plan to curb foreclosures and ease the housing slump that helped ignite the recession.
"Anytime you can put the consumer in better financial shape, by having more disposable income in their pockets, lessening their debt burden ... all those things help," Lowe's Chairman and Chief Executive Robert Niblock said Friday. "Is what you're seeing going to be enough to cause a dramatic turnaround in the environment? No, we don't think so. It just makes the environment less bad."
Lowe's said it earned $162 million, or 11 cents per share, in the three months ending Jan. 30. That's down from $408 million, or 28 cents per share, during the same period last year. Revenue slid 4 percent to $9.98 billion.
The latest results narrowly missed analysts' estimates, thanks in large part to the company's decision to offer deep discounts, earlier than planned during the weeks before Christmas—a decision that cut into profit margins, but helped the company clear out inventory.
Still, the news wasn't all grim.
Same-store sales for the period dropped 9.9 percent—"actually not as bad as some had expected," Deutsche Bank analyst Mike Baker told investors in a research note. The same-store figure measures sales at locations open at least a year, a key indicator of performance since it tracks growth at existing stores rather than newly opened ones.
And the company's building materials business got a welcome boost as residents of the Gulf Coast continued to rebuild from this fall's hurricanes. Lawn and landscape sales also grew from last year -- a good sign as the company and its competitors -- including The Home Depot, which reports results on Tuesday -- gear up for their busiest season of the year.
"Whether it's cabin fever as you go through the winter, the consumer wants to go outside and spend some time outdoors," Niblock said.
Lowe's said it planned to open between 60 and 70 new stores in 2009, a 15 percent decrease from its estimates this fall. If the company goes ahead with the openings as planned, it will add 40 percent fewer stores in 2009 than the 115 stores it added to its portfolio last year.
For the year, Lowe's said its profit fell 22 percent to $2.2 billion, or $1.49 per share, from a profit of $2.81 billion, or $1.86 per share, in the prior year. Revenue dipped to $48.2 billion from $48.3 billion. Same-store sales for 2008 fell 7.2 percent.
Lowe's now expects to earn $1.04 to $1.20 per share in 2009, below the $1.27 per share analysts expected. The company predicts full-year revenue will range from a 2 percent drop to a 2 percent increase, while same-store sales are forecast to slip 4 percent to 8 percent.
The company anticipates first-quarter net income of 23 cents to 27 cents per share, below the 32 cents per share analysts anticipated. Revenue is expected to range from a 3 percent decline to a 1 percent increase. Quarterly same-store sales are estimated to drop 6 percent to 10 percent.
Lowe's shares fell, hovering around $15 in afternoon trading Friday.