* Q4 adjusted profit, margins well short of estimates
* Customer transactions fall 0.8 pct, avg spend rises
* Same-store sales and net sales top estimates
* Shares fall as much 9.4 pct, Home Depot shares flat (Adds CEO comment from conference call, updates shares)
Feb 28 (Reuters) - Lowe's Companies Inc's quarterly profit and margins fell well short of Wall Street estimates on Wednesday as the No. 2 U.S. home improvement chain's heavy spending to convert shoppers' visits into sales did not pay off as much as expected.
The company's shares tumbled 9 percent after Lowe's forecast a drop in margins this year - due to heavy investment in a very competitive U.S. market.
A forecast that same-store sales growth would also slow this year suggested that investment would not bear fruit soon and left it trailing sector leader Home Depot.
"We made an investment in the third quarter to bolster conversion rates ... we need to make the incremental investments to ensure that we convert that traffic into transactions," Chief Executive Officer Robert Niblock said on a conference call.
Lowes's spent on initiatives such as advertising and home deliveries in its fourth quarter. While that pulled in more shoppers, customer transactions fell 0.8 percent, compared with a 0.7 percent rise in the prior quarter.
Lowe's said that customers bought more appliances, lumber and building materials in the quarter, which BTIG analyst Alan Rifkin said were typically low-margin products.
The company's gross margins fell to 33.73 percent, missing analysts estimates of 34.27 percent, according to Thomson Reuters I/B/E/S. Operating margins also dropped and Lowe's said it expected a drop of about 30 basis points this year.
Still, shoppers who did spend at Lowe's, shelled out more on average last quarter, though that was also due to more promotions.
That helped same-store sales rise 4.1 percent, topping market expectations. That was well below the 7-percent growth posted by market-leader Home Depot Inc, which also reported higher customer transactions and average spend.
Lowe's net sales fell nearly 2 percent to $15.49 billion, but topped estimates of $15.33 billion.
Net income fell 12.5 percent to $554 million. Its adjusted earnings of 74 cents per share were well below analysts' estimate of 87 cents.
The results from the home improvement chain, which also owns Canadian home goods retailer Rona, come at a time when rising mortgage rates and the impact of the U.S. tax reforms on higher-priced homes have begun to worry investors in construction-related businesses.
Lowe's shares were down 6.3 percent at $89.81 in mid-day trading, easing from a session-low of $86.75. Home Depot's shares were little changed. (Reporting by Aishwarya Venugopal in Bengaluru; Editing by Savio D'Souza)