UPDATE 3-Lowe's expects pickup in home improvement spending

Wed Aug 20, 2014 12:31pm EDT

* Cuts sales growth forecast to 4.5 pct from 5 pct

* 2nd-qtr revenue rises 5.6 pct to $16.59 bln

* Expects spending on home-improvement to grow in second half (Adds details from conference call, CEO interview; updates shares)

By Sruthi Ramakrishnan

Aug 20 (Reuters) - Lowe's Cos Inc, the No. 2 U.S. home improvement products retailer, echoed larger rival Home Depot Inc in anticipating higher spending on renovations in the second half of the year as the U.S. housing market showed signs of a recovery.

Lowe's said it expects higher demand for products such as electronic appliances, fashion fixtures and flooring as people spruce up their homes ahead of the holidays.

"Consumers are indicating stronger intentions to complete a home-improvement project, with most of them planning a specific project in the next three months," Lowe's Chief Executive Robert Niblock said on a conference call with analysts.

Home Depot on Tuesday maintained its full-year sales growth forecast of about 4.8 percent, but said it expected same-store sales to grow faster in the second half as customers renovate homes with big-ticket purchases.

U.S. housing starts rebounded strongly in July, Commerce Department data showed on Tuesday, signaling that the housing market is regaining its footing after being hurt by last year's run-up in interest rates.

Lowe's, however, on Wednesday cut its sales growth forecast to about 4.5 percent from about 5 percent for the year ending January, unable to make up for the sales missed during the prolonged North American winter.

"... First and second quarter together, we are still slightly short of where we'd anticipated being this time of the year," Niblock told Reuters.

Lowe's also lowered its same-store sales growth forecast for the year by half a percentage point to about 3.5 percent.

"It was quite evident after the first quarter that the guidance was hopelessly optimistic," Rahul Sharma, managing director at Neev Capital, told Reuters. "They assumed too much acceleration."

Sharma said wage inflation among the more skilled job categories and the "general wealth effect" on those invested in equities and similar products were making the higher-income consumer a spending "sweet spot."

But lower and middle-income consumers are reining in spending on food and other essentials, forcing Wal-Mart Stores Inc and dollar stores to discount more.

BETTER-THAN-EXPECTED SECOND QUARTER

Lowe's maintained its full-year profit forecast of about $2.63 per share.

The company said it recovered "most of the outdoor product sales" it had missed due to a severe winter but said sales of discretionary interior products, such as window air conditioners, were fewer than expected in the second quarter due to a cooler summer.

Lowe's same-store sales rose 4.4 percent in the second quarter. Analysts polled by Consensus Metrix had expected a rise of 4.1 percent.

Net income rose 10.5 percent to $1.04 billion, or $1.04 per share, in the quarter ended Aug. 1. Revenue rose 5.6 percent to $16.59 billion.

Analysts on average had expected earnings of $1.02 per share on revenue of $16.55 billion, according to Thomson Reuters I/B/E/S.

Lowe's shares were nearly flat at $51.70 on the New York Stock Exchange after falling as much as 3.5 percent in early trading. (Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Don Sebastian)

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