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Lowe's Profit Up, but Sales Nearly Flat

May 20, 2003|From Reuters

Home improvement retailer Lowe's Cos. said Monday that quarterly profit rose 22%, but sales came in far lower than expected because of poor weather and misjudgment on a key product.

Shares of Lowe's, which is moving into markets dominated by industry leader Home Depot Inc., sank 9% in New York Stock Exchange trading.

"It's the first time they've sort of stumbled," said Phil Larkins, a portfolio manager at Northern Trust. "My gut reaction is that it's not a deep problem."

Lowe's executives said heavy snow in the East and rain in the Southeast resulted in a scant rise in sales at stores open at least a year, its worst same-store sales showing in two years.

Lowe's also said it underestimated the demand for some kinds of outdoor power equipment. Chairman Robert Tillman said mid-priced John Deere mowers, which Home Depot recently introduced, had a "serious impact" on retailers that did not carry that brand.

Although soft consumer spending and bad weather have hurt many retailers' sales, some analysts said the results raise a question about whether Lowe's is being affected by competition from Home Depot, which is renovating older stores, hiring more full-time staff and advertising more to spur sales.

For the last year, analysts have said Lowe's was taking sales away from Home Depot, which posts earnings today and has reported same-store sales declines for the last two quarters.

Lowe's, based in Wilkesboro, N.C., said first-quarter earnings rose to $421 million, or 53 cents a share, from $346 million, or 44 cents, a year earlier.

Analysts on average were expecting 52 cents, according to research firm Thomson First Call.

Sales rose 11% to $7.2 billion. But same-store sales, a key performance measure for retailers, increased only 0.1%, compared with a strong 7.5% jump a year earlier and Lowe's forecast of a 2% to 4% gain.

Lowe's shares fell $4 to $40.30, while Home Depot closed down $1.12, or 3.8%, at $28.07 on the New York Stock Exchange.

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