February 27, 2019 / 11:39 AM / 2 months ago

Lowe's predicts more home renovations this year after strong profit

(Reuters) - U.S. home improvement chain Lowe’s beat Wall Street earnings forecasts on Wednesday, and predicted that more Americans would renovate their houses this year rather than buy a home in a market where prices are rising.

A view of the sign outside the Lowes store in Westminster, Colorado February 26, 2014. REUTERS/Rick Wilking/File Photo

Lowe’s shares rose 1.1 percent after the results, which followed a weak earnings forecast from larger rival Home Depot on Tuesday.

Lowe’s Chief Executive Officer Marvin Ellison said the home improvement industry should continue to benefit from higher incomes, lower federal tax rates and rising house prices.

“As home prices are increasing, consumers are staying in their homes longer and because of their improved financial position, they are investing in their homes,” Ellison said on a conference call with analysts.

While Home Depot makes the bulk of its sales from contractors who bill more, Lowe’s sells a wide range of do-it-yourself projects mainly to individual home owners.

The Mooresville, North Carolina-based company is now trying to serve more contractors, and on Wednesday it said results in that business have been positive.

Since Ellison took over in July, Lowe’s has hired thousands of software workers and opened fulfillment centers to boost online sales, while also trying to improve the in-store experience.

“We’re simply servicing an existing customer better, and we’re becoming a second, if not a first option, for customers that literally stopped shopping us because we didn’t have adequate inventory levels,” Ellison said.

Lowe’s U.S. comparable-store sales rose 2.4 percent during the fourth quarter ended Feb. 1, with growth of 5.8 percent in January.

“We like the direction (Lowe’s is) headed,” said Eric Grasse, a vice president at Dillon & Associates which owns shares in both Lowe’s and Home Depot.

Meanwhile, Lowe’s comparable-store sales declined in Canada, where the company now runs less than 300 outlets after closing dozens of unprofitable stores.

“We anticipate weakness in the Canadian housing market, which is exerting pressure on our outlook for that business over the near term,” Ellison said, adding he was confident of Lowe’s long-term potential in Canada.

Overall comparable-store sales rose 1.7 percent, but missed analysts’ average estimate of a 2.03 percent increase, according to IBES data from Refinitiv.

The company reported a loss in the fourth quarter due to the impact of restructuring expenses but excluding one-time items, Lowe’s earned 80 cents per share, beating Wall Street estimates by 1 cent.

Reporting by Nivedita Balu in Bengaluru; Editing by Sai Sachin Ravikumar

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