Earnings: Lowe's

Lowe's Posts Lower-Than-Expected 2Q Profit, Cuts Forecasts

ATLANTA (Reuters) - Retailer Lowe's Cos. (LOW) Monday posted a lower-than-expected second-quarter profit and pared its full-year forecasts as higher energy prices and a slowing U.S. housing market weigh on consumer spending.

Shares of Lowe's, the second-largest home improvement chain behind Home Depot Inc. (HD), were down 4.5 percent in New York Stock Exchange trading.

"Clearly, Lowe's didn't quite sell as much as they intended, and it looks like the (product) mix of what they were selling was not ideal," said Dan Popowics, an equity analyst with Fifth Third Asset Management.

Mooresville, North Carolina-based Lowe's and Home Depot have benefited from record U.S. home sales and construction, but now face tougher comparisons.

Last week, Atlanta-based Home Depot said profit and sales growth this year would come in at the low end of its projections.

Lowe's earnings rose 11 percent to $935 million, or 60 cents a diluted share, for the quarter ended Aug. 4, from $839 million, or 52 cents a share, a year earlier. Analysts, on average, expected profit of 61 cents a share, according to Reuters Estimates.

Sales at stores open at least a year — an important retail measure — gained 3.3 percent, at the low end of a forecast of a rise of 3 percent to 5 percent given in May.

Total sales rose 12 percent to $13.4 billion, and Lowe's cited market share improvements in appliances, flooring, kitchen cabinets and outdoor power equipment.

Popowics said weaker gross margins at Lowe's, which has Wall Street profit topped estimates for the past year as it expands to big U.S. cities, could indicate that skittish consumers are trading down to lower-priced products. Lowe's gross margin for the quarter was 33.44 percent, compared with 33.76 percent a year earlier.

"Historically, Lowe's has made good strides in gross margin, and perhaps they now had to feature some more opening price point items," Popowics said.

Lowe's expects total sales to rise about 11 percent for the year, compared with a May forecast for an increase of 13 percent. The company said the 2006 year would include one less week than 2005.

The retailer pared its full-year profit forecast to a range of $2 to $2.07 a share from a May projection of $2.07 to $2.11 a share, adjusted for a June stock split.

Same-store sales for the year are expected to rise 2 percent to 3 percent, compared with a May forecast of a gain of 4 percent to 5 percent.

For the third quarter, Lowe's projected earnings of 45 cents to 48 cents a share as same-store sales are flat to up 2 percent. Analysts currently expect per-share profit of 46 cents for the quarter, according to Reuters Estimates.

Lowe's stock slid $1.32 to $28.20, and was the second most active issue on the NYSE. Home Depot shares were down 50 cents at $34.27, also on the NYSE.

Lowe's stock has fallen 14.5 percent so far this year, compared with a 14.1 percent drop for Home Depot.

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