By Dhanya Skariachan
Aug 21 Lowe's Cos Inc reported
stronger-than-expected quarterly results as the housing market's
recovery encouraged Americans to spend more on their homes, and
the No. 2 home improvement chain narrowed its sales gap against
rival Home Depot Inc.
The results prompted Lowe's to raise its fiscal-year
outlook, and its shares hit an all-time high on a split adjusted
basis on Wednesday.
The news came the day after Home Depot also reported rosy
results, giving further proof of the strength in the U.S.
housing market recovery.
Lowe's sales at stores open at least a year rose 9.6 percent
in the second quarter ended on Aug. 2 but trailed the 10.7
percent increase at Home Depot.
However, that is the narrowest gap in same-store sales
between the two retailers since the third quarter of 2010, BMO
Capital Markets analyst Wayne Hood said.
"This could signal that (Lowe's) product line reviews and
merchandise assortment overhaul are starting to work," Hood
Home improvement chains, whose sales crumbled during the
housing downturn, are enjoying a comeback as rising prices for
homes have led to renewed interest in renovating them.
"We think both companies are on a pretty good surfboard in
front of a pretty good tsunami," said Bill Smead, a portfolio
manager at the Smead Value Fund in Seattle.
U.S. home resales rose in July to a more than three-year
high, the National Association of Realtors said on Wednesday,
suggesting a sharp rise in borrowing costs has had only a
limited impact on the housing recovery so far.
"The rate increases will likely take some steam out of the
recent housing market rebounds, but shouldn't derail it as long
as job gains persist, homes continue to appreciate and rates
rise more gradually going forward," Lowe's Chief Executive
Officer Robert Niblock said on a conference call.
Smead's firm holds Home Depot shares and sees better
longer-term prospects for the industry leader, citing its strong
management team, free cash flow and balance sheet.
Some analysts also say Home Depot will continue to
outperform Lowe's on the sales front for a while, in part
because it derives much more revenue from the key contractor and
professional customer group.
These customers account for 35 percent of Home Depot's
sales, compared with 25 percent at Lowe's. Some analysts have
said it is hard to close that gap quickly because Home Depot has
more stores than Lowe's in major metropolitan areas, where many
of the professional contractors are based.
Lowe's recently agreed to buy several neighborhood hardware
and garden stores in California from Orchard Supply Hardware
Stores Corp, which Sears Holdings Corp spun
off less than two years ago. The deal gave Lowe's access to
Orchard's prime locations in high-density markets in California,
an area where it was under-represented.
Shares of Lowe's were up 4.4 percent at $46.05 in afternoon
trading after rising as high as $47.25 earlier in the session.
Home Depot dipped 0.2 percent to $74.11.
Both stocks trade around 19 times expected earnings for the
next 12 months, making them more expensive than many of their
Lowe's net earnings rose to $941 million, or 88 cents a
share, in the second quarter from $747 million, or 64 cents a
share, a year earlier. Analysts were expecting a profit of 79
cents a share, according to Thomson Reuters I/B/E/S.
Sales increased 10.3 percent to $15.71 billion, exceeding
analysts' estimates of $15.06 billion.
For the fiscal year ending Jan. 31, Lowe's said it expected
total sales to rise about 5 percent, while it had previously
called for a 4 percent increase. It raised its
earnings-per-share forecast to about $2.10 from $2.05.
Home Depot was quicker than Lowe's to cut costs during the
recession. In recent years, it has also benefited from its
efforts to improve customer service and attract shoppers with
more compelling prices than its rivals. It has tailored its
marketing to local areas, centralized distribution centers and
shifted more workers to jobs where they serve customers
After losing share to Home Depot for several quarters,
Lowe's laid out a turnaround plan. As part of its makeover, the
smaller company 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.