Lowe's, the world's No. 2 home improvement chain by market share, reported a better-than-expected rise in quarterly sales on Wednesday and forecast 2016 sales above estimates as it benefits from a steady improvement in the U.S. housing market.
The company, like bigger rival Home Depot, is benefiting from pent-up demand for houses after the 2008 recession, while low interest rates and growth in jobs, wages and credit have spurred spending on renovations.
The key data point boosting housing-related retailers is home price appreciation, said Brian Nagel, Oppenheimer & Co. senior equity research analyst.
"Since the economic downturn, now several years ago, we've seen very steady home price appreciation in the United States, and what that does is it gives that homeowner consumer the confidence to invest in their home," he told CNBC's "Squawk Box" on Wednesday.
The S&P/Case-Shiller 20-City Composite index showed home prices in major metropolitan areas rose 5.7 percent in December, continuing the trend of 5-plus percent growth, though the pace of gains slowed slightly.
Lowe's said it expects sales for the current fiscal year, which will include an extra week, to rise 6 percent, to $62.62 billion. That handily beats the 4.8 percent growth analysts on average had estimated, according to Thomson Reuters I/B/E/S.
Besides the housing market improvement, Lowe's was also helped by unseasonably warm weather in the holiday quarter that encouraged customers to continue outdoor activities and home renovations.
"We capitalized on increased demand for exterior products as a result of warmer weather, while at the same time helped customers tackle interior projects, allowing us to deliver positive comps in all product categories," Chief Executive Officer Robert Niblock said Wednesday.
The company's net sales rose 5.6 percent to $13.24 billion in the fourth quarter ended Jan. 29 from $12.54 billion a year earlier. Analysts on average were expecting revenue of $13.07 billion, according to Thomson Reuters.
Sales at Lowe's established stores rose 5.2 percent in the fourth quarter.
Lowe's net earnings fell to $11 million, or 1 cent per share, from $450 million, or 46 cents per share, hurt by a $530 million impairment charge as it exited a joint venture in Australia. Excluding items, Lowe's posted earnings of 59 cents a share, matching a consensus estimate from Thomson Reuters.
Earlier this month, Lowe's said it would buy home-improvement chain Rona in a deal valued at 3.2 billion Canadian dollars ($2.28 billion) to enter Canada's Quebec province, where Rona is the market leader.
Lowe's said the deal, which will add to its earnings in the first year after the deal closes, would increase revenue and operating profitability in Canada.
— Reuters contributed to this report.