No. 2 home improvement chain Lowe's Cos Inc (LOW.N) reassured investors that sales trends improved significantly in April and May after seeing a weak start to the spring selling season.
The news pushed Lowe's shares to an all-time high and overshadowed the weaker-than-expected first-quarter results the chain reported on Wednesday, as colder-than-usual weather hurt demand for lawn and garden and other seasonal goods.
"We do believe that we will make up a significant portion of the sales that we lost in the first quarter," Chief Executive Robert Niblock said in an interview, referring to more favorable weather trends in the current quarter.
Like its larger rival Home Depot Inc (HD.N), Lowe's said it was seeing strong sales to contractors. For the first time since 2008, sales to contractors and professional customers grew at a faster pace than those to regular homeowners and other shoppers, Home Depot CEO Frank Blake said on Tuesday.
"All that just speaks to what you have been hearing about the housing market starting to recover," Niblock told Reuters.
While Wall Street expects the housing market recovery to help both retailers, some analysts predict that Home Depot will continue to outperform Lowe's on the sales front for a while, partly due to a structural advantage.
Home Depot derives 35 percent of its sales from contractors and professional customers, while Lowe's derives only 25 percent of sales from professional customers, RBC Capital Markets analyst Scot Ciccarelli said.
Ciccarelli said it was "hard to close" that gap because Home Depot had more stores than Lowe's in major metro areas and many of the professional contractors and their businesses were based in those areas.
FIGHTING HOME DEPOT
On a conference call, Lowe's said same-store sales rose about 10 percent in April after falling 10 percent in March. Lowe's also managed to maintain the momentum in same-store sales in the first three weeks of May, the company said.
Lowe's sales fell 0.5 percent to $13.09 billion in the first quarter ended on May 3, missing the analysts' average estimate of $13.45 billion. Sales at stores open at least a year dipped 0.7 percent. It was the 16th straight quarter that Lowe's posted weaker same-store sales than Home Depot.
"The spread between Home Depot and Lowe's (same-store sales) expanded in the first quarter, something we had worried might happen," said Janney Capital Markets analyst David Strasser.
Lowe's stocked more lawn and garden products than Home Depot and as a result suffered more from the unfavorable weather, Strasser said. At the same time, he said, Home Depot had a greater presence in California, where housing has made a strong comeback.
While Lowe's has been working to improve product selection and customer service, it has yet to turn around its business.
If Lowe's does not close the performance gap with Home Depot by late 2013 or early 2014, investors may conclude that Lowe's has failed to benefit as much as expected from its exposure to the U.S. housing market, Ciccarelli said by phone.
"I would be very surprised if it caught Home Depot in this cycle in terms of same-store sales, market share," said Chris Bertelsen, chief investment officer of Sarasota-based wealth manager Global Financial Private Capital that owns Lowe's shares. He wants the company to close more unprofitable stores.
As part of its makeover, the company has started offering everyday low prices and products targeted to specific geographic markets. It made its stores more appealing with improved signs, television displays that stream videos on how-to-do projects, and lower racks to make items easier to reach.
Lowe's has also increased its assortment of products available online and started mylowes.com, a website that allows shoppers to save their room dimensions, create a shopping list and set reminders to buy items such as air filters and batteries for smoke alarms.
Lowe's, which was also slower than Home Depot to cut costs in the years after the housing collapse, said first-quarter net earnings rose to $540 million, or 49 cents a share, from $527 million, or 43 cents a share, a year earlier.
Analysts on average expected a profit of 51 cents a share, according to Thomson Reuters I/B/E/S.
Lowe's stock was up 1.3 percent at $42.96 on Wednesday afternoon, after touching an all-time high of $43.84 earlier in the session.
(Reporting by Dhanya Skariachan in New York; editing by Lisa Von Ahn, Jeffrey Benkoe and Matthew Lewis)