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UPDATE 2-Lowe's profit and margins miss lowest Wall St estimate, shares tumble

tumble@ (Adds background, CEO comment, forecast; updates shares)

Feb 28 (Reuters) - Lowe's Companies Inc's quarterly profit and gross margins failed to beat even Wall Street's lowest estimate on Wednesday as the No.2 U.S. home improvement chain's margins fell, sending its shares down about 10 percent premarket.

The company also forecast same-store sales growth would slow this year and operating margins would fall, saying it had to spend heavily to take on competition.

"Given the rapidly evolving competitive landscape, we are also accelerating our strategic investments leveraging the benefits of tax reform," Chief Executive Officer Robert Niblock said.

"As we enter 2018, we are working diligently to improve execution with a focus on conversion, gross margin, and inventory management."

Last week, Lowe's bigger rival Home Depot Inc reported holiday-quarter profit that topped market estimates as it drew in more shoppers who spent more on average amid an improving U.S. housing market.

But, concerns about rising mortgage rates and the impact of the U.S. tax reforms on higher-priced homes continues to be a risk.

Commerce Department data on Monday showed January marked the first year-on-year drop in sales of new U.S. single-family homes in five months.

Lowe's net income fell to $554 million, or 67 cents per share, in the fourth quarter ended Feb. 2, from $663 million, or 74 cents per share, a year earlier that included an extra week.

Excluding charges related to the U.S. tax reforms and a one-time bonus, Lowe's earned 74 cents per share.

That was well below analysts' average estimate of 87 cents, with estimates ranging from 80 cents to 94 cents, according to Thomson Reuters I/B/E/S.

Lowe's gross margins fell to 33.73 percent from 34.41 percent. Analysts were expecting 34.27 percent, with the most pessimistic broker estimating 34 percent.

Lowe's operating margins fell nearly 100 basis points to 7.08 percent in the fourth quarter, but rose to 9.60 percent for the year.

The company said it expects operating margins to decrease about 30 basis points this fiscal year.

Net sales fell nearly 2 percent to $15.49 billion in the quarter, but topped estimates of $15.33 billion.

Same-store sales rose 4.1 percent, also above estimates of 3.1 percent. In comparison, Home Depot's same-store sales surged 7.5 percent.

Lowe's expects same-store growth to slow to about 3.5 percent this fiscal year, from 4 percent in the just-concluded fiscal.

Lowe's shares were down 8.4 percent at $87.78. They hit a low of $86. (Reporting by Aishwarya Venugopal in Bengaluru; Editing by Savio D'Souza)