Lowe's profit drops 18% on housing-market malaise - MarketWatch

NEW YORK (MarketWatch) -- Lowe's Cos., the No. 2 U.S. home-improvement retailer, said Monday that its first-quarter profit dropped 18%, hurt by the declining housing market and a spate of other economic worries that cut into consumers' discretionary spending. The company lowered its full-year outlook and said it's taking a close look at its store expansion pipeline.

Net income at Lowe's dropped to $607 million, or 41 cents a share, from $739 million, or 48 cents a share, in the year-earlier period, the Mooresville, N.C.-based company said. Sales fell 1.3% to $12 billion in the quarter, while same-store sales decreased 8.4%.

Lowe's said it expects a per-share profit of 54 cents to 59 cents for the second quarter and $1.45 to $1.55 for the year, on continued declines in comparable-store sales. In February, its outlook for the fiscal year ending Jan. 30 was pegged at $1.50 to $1.58 a share.

Analysts, on average, expected the company to earn 40 cents a share in the first quarter, 56 cents in the second quarter and $1.54 for the year, according to FactSet Research. First-quarter sales missed analysts' estimates of $12.4 billion, according to FactSet.

"No signs yet of a recovery," wrote Deutsche Bank analyst Mike Baker. "We don't believe investors were looking for much improvement, but we have yet to see trends get 'less worse.'"

The challenging economic environment of the past six quarters continued into the first-quarter, leading Lowe's to miss its own sales plan, the company said. Cooler and wetter weather in the first two months of the quarter also dampened demand. See related commentary.

Lowe's said it is controlling payroll and other expenses and taking a closer look at its new-store expansion by either postponing some planned openings or walking away from some potential store prospects after some new stores missed the company's internal projections.

"The external pressures facing our industry will likely persist throughout 2008," said Chief Executive Robert Niblock on a conference call.

The company also is taking a "conservative" view on the Federal Reserve's interest-rate cuts as well as the stimulus rebate checks in light of rising costs that are facing consumers, Niblock said.

Home Depot, Lowe's larger rival, also has been hurt by the housing and economic downturns. Earlier this month, Home Depot said it would slow its new-store growth, abandoning plans to add about 50 U.S. stores to save cash for existing locations as part of its strategy to improve customer service and remodel stores after it had lost market share to Lowe's. See full story.

First-quarter gross margin at Lowe's narrowed to 34.69% from 34.99%. Total expenses rose to 26.59% of sales from 25.20%, as the company is on track to open about 120 stores this year.

"Expense control was outstanding," said Goldman Sachs analyst Matthew Fassler. "Excellent cost and inventory control should blunt the [sales guidance] blow."

Of the company's stores that have been open at least a year, about 80% were located in markets experiencing housing declines, Lowe's said. California, Nevada, Arizona and the Pacific Northwest each posted double-digit drops in same-store sales, offsetting strong performance in markets such as Texas and Oklahoma, the company said. Florida and the Gulf Coast region, while also posting double-digit declines, showed some improvement.

Lowe's also has gained market share, even against the backdrop of rising food and fuel prices and housing-market malaise. Lowe's said it has gained market share in 15 of 19 product categories and expanded total market share by 0.7 percentage point.

"Less well-capitalized competitors are struggling during this downturn," said President Larry Stone on the call.

Lowe's profit drops 18% on housing-market malaise - MarketWatch

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