* Q2 sales fall 4.6 pct
* Q3 profit forecast below Wall Street view
* Reduces plans for North American expansion
* Lowe's shares down 11 pct; Home Depot off 4 pct
* Analysts welcome cut to store growth
(Adds analyst comment)
By Dhanya Skariachan
BANGALORE, Aug 17 Lowe's Cos (LOW.N), the No. 2
U.S. home improvement chain, curbed its expansion plans and
forecast worse-than-expected results in the third quarter as
recession-weary consumers put off big renovations, sending its
shares down more than 11 percent.
The forecast dragged down shares of industry leader Home
Depot (HD.N), which reports its quarterly results on Tuesday.
Lowe's, which posted a 19 percent drop in quarterly profit
on Monday, blamed weak demand for its decision to scale back
North American store expansion plans. It will walk away from a
number of future store projects too, the company said.
"I think it's the right decision... this industry does not
need more capacity," said Stifel Nicolaus analyst David
Lowe's said it will provide more details on its expansion
plans at its analyst conference next month.
Lowe's plans to open 62 to 66 stores in 2009. It previously
said it would open 60 to 70. It expects to open 35 to 45 stores
in 2010, fewer than it had anticipated.
"The decision to cut bait on several projects is an
acknowledgment of the challenging environment that is likely to
persist for some time," JP Morgan analyst Christopher Horvers
said in a note.
Sales at home-improvement chains have tumbled as people
save money by buying fewer things that they do not need.
Although the housing market and economy are showing signs
of bottoming out, Lowe's Chief Executive Robert Niblock said he
sees consumers remaining under pressure for now.
"Significant headwinds remain including the pressures of
the economic backdrop and cycling last year's hurricane
spending along the Gulf Coast," Niblock said.
Lowe's and Home Depot shares will stay under pressure as
investors abandon their expectations for improving sales in the
second half of the year, but margin trends at both retailers
are strong, said Credit Suisse analyst Gary Balter.
"We believe that both Lowe's and Home Depot are well
positioned for an eventual bottoming in housing," he said.
Schick, who has a "buy" rating on Home Depot and Lowe's,
called Lowe's outlook "somewhat conservative" and said the
company was entering "less bad housing headwinds" and getting
better by taking a tougher look at operations.
He has a "buy" rating on Home Depot and Lowe's.
Schick said he expects Home Depot's numbers to look "less
bad" on Tuesday citing improvements at its business in certain
regions, especially California.
"Home Depot has been at the slower growth game longer,
allowing for even better inventory controls and productivity
tweaks to the operating model," he added.
Earlier this year, Lowe's raised its full-year forecast
after seeing signs that the worst of the U.S. housing slump
might have passed. Home Depot did the same in June.
New U.S. housing starts and permits jumped in June,
suggesting that the battered housing sector was beginning to
stabilize, a government report showed in July.
While sales of expensive goods suffer, both chains have
done well with products for outdoor, "do-it-yourself" projects
like landscaping and painting.
BAD WEATHER, WEAK ECONOMY
In the second quarter, which ended on July 31, Lowe's said
it earned $759 million, or 51 cents a share, down from $938
million, or 63 cents a share, a year earlier.
Excluding a charge of $48 million related mainly to the
projects that Lowe's no longer plans to pursue, profit was 54
cents a share, in line with the analysts' average forecast,
according to Reuters Estimates.
Wavering consumer confidence and an unseasonably cool, wet
summer in key markets, especially in the Northeast, restrained
customer spending and hurt sales, Niblock said.
Sales at Lowe's fell 4.6 percent to $13.8 billion. Sales at
stores open at least a year, an important retail measure, fell
For the third quarter, Lowe's forecast earnings of 21 cents
to 25 cents a share, while analysts had expected 27 cents.
The Mooresville, North Carolina, company said it expected
sales to fall 2 percent to 5 percent, and same-store sales to
fall 6 percent to 10 percent.
Lowe's shares were down 11 percent at $20.30 on the New
York Stock Exchange, while Home Depot fell 4 percent to
(Reporting by Dhanya Skariachan in Bangalore; Editing by Lisa
Von Ahn and Robert MacMillan)