UPDATE 5-Homeowners delay renovations, Lowe's cuts forecast

Mon Aug 15, 2011 10:36am EDT

* Q2 sales rise to $14.54 bln but miss $14.75 bln estimate

* Q2 EPS ex-items 68 cents vs Street view 66 cents

* Cuts full-year sales, profit outlook

* Analysts expect better same-store sales from Home Depot

* Lowe's shares down 1.3 percent (Adds CEO comments, homebuilder sentiment, updates shares)

By Dhanya Skariachan

NEW YORK, Aug 15 (Reuters) - Lowe's Cos Inc (LOW.N) reported weaker-than-expected quarterly sales and cut its fiscal-year outlook for the second time in three months as homeowners put off big renovations in an anemic U.S. economy.

The news pushed the second-largest home improvement chain's shares down 1.3 percent on Monday, and made some analysts take a more cautious stance on retailers selling hard goods such as furniture and appliances.

Lowe's is a victim of the ailing economy, weak housing market as well as cut-throat competition from larger rival Home Depot Inc (HD.N), analysts said.

"The bulk of what is happening here is that the economy has yet to give them traction," Stifel Nicolaus analyst David Schick told Reuters.

U.S. homebuilder sentiment remained stuck near historic lows in August. [ID:nLDE77E0K8]

Consumer sentiment in the world's largest economy worsened sharply in early August, falling to the lowest level in more than three decades. U.S. economic growth was anemic in the first half of the year. [ID:nN1E77B08W] [ID:nN1E77B0I4]

"The volume of negative news and the unsettling impact on equity markets is having a significant effect on already fragile consumer mindset," CEO Robert Niblock said on a conference call. "Consumers continue to focus on small ticket, less than $500, repair and maintenance items and projects."

Lowe's sales rose 1.3 percent to $14.54 billion in the second quarter, missing analysts' estimate of $14.75 billion.

"Despite some recovery in our seasonal business, our performance for the quarter fell short of our expectations," Niblock said.

Sales at stores open at least a year fell 0.3 percent. JP Morgan analyst Christopher Horvers was expecting same-store sales at Lowe's to stay flat. Like many analysts, he expects industry leader Home Depot Inc (HD.N) to report better same-store sales when it reports quarterly results on Tuesday.

(For a related graphic, click r.reuters.com/qyx23s)

"The competitive landscape has changed. Five or ten years ago, Home Depot was not as competitive as they are today," Schick said. "Home Depot becoming a more competitive, better run company makes it more difficult to get topline traction."

Last week, Canadian rival Rona Inc (RON.TO) reported a steeper-than-expected 40 percent drop in quarterly profit. [ID:nN1E7790V2]

BUDGET-CONSCIOUS SHOPPERS

Many U.S. homeowners have been hesitant to spend on expensive renovations as housing prices fall and the U.S. economy shows few signs of a stable recovery.

Home improvement chains have also found it harder to sell expensive items such as appliances.

On Monday, Barclays downgraded its view on the U.S. retail hardlines sector to "negative" from "neutral."

Lowe's, which closed seven underperforming stores, said it is now planning to offer more attractive opening price points and improve in-store layout to win shoppers. It is also launching the Spanish version of lowes.com this week.

SHARES STILL ATTRACTIVE

Despite the weak outlook, analysts did not shun Lowe's shares due to their attractive valuation.

"They do not have the momentum that Home Depot has and we expect Home Depot to report better results tomorrow but Lowe's is cheaper and both valuations seem to incorporate a slowdown already," Credit Suisse analyst Gary Balter said.

Lowe's now sees sales rising about 2 percent for the fiscal year ending Feb. 3, down from its prior forecast for a 4 percent increase.

Net income was $830 million, or 64 cents a share, in the second quarter, compared with $832 million, or 58 cents a share, a year earlier.

Excluding special items, it earned 68 cents a share. On that basis, analysts were expecting 66 cents, according to Thomson Reuters I/B/E/S.

The company now sees earnings of $1.48 to $1.54 a share for the year. In May, it cut its forecast to a range of $1.56 to $1.64 a share, down from a prior outlook of $1.60 to $1.72. (Reporting by Dhanya Skariachan; editing by John Wallace, Dave Zimmerman)