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Lowe's Profit Climbs 18%; Same-Store Sales Up 5.1%

Solid second-half earnings are expected despite some weakness in June and July.

August 17, 2004|From Reuters

Home improvement retailer Lowe's Cos. on Monday reported an 18% increase in second-quarter net income and said earnings for the rest of the year would top analysts' forecasts.

Lowe's shares gained more than 5% as analysts cited relief that solid second-half profit was expected despite some sales weakness in June.

"The company was quick to point out that sales trends seem to have recovered, and it continues to have a relatively favorable outlook," said Nancy Aversa, an analyst at Victory Capital Management, which owns nearly 9 million Lowe's shares.

Lowe's, based in Mooresville, N.C., said profit rose to $704 million, or 89 cents a share, for the quarter ended July 30, from $597 million, or 75 cents, a year earlier. Analysts were expecting a profit of 90 cents a share, according to Reuters Estimates.

Sales at stores open at least a year, a key gauge of retail performance, rose 5.1%, below Lowe's expected rise of 6% to 7%.

Total sales rose more than 17% to $10.2 billion, marked by demand for lumber, outdoor power equipment and plumbing supplies. Lowe's said higher-priced merchandise and new installed-sales and special-order programs drove up the average purchase.

Sales softened in June and early July as many factors, including adverse weather, delayed the start of late-spring and summer projects. The retailer said sales rebounded later in July and were running above guidance for the third quarter.

Victory Capital's Aversa expects similar sales trends for Home Depot Inc., which reports results today. Both Lowe's and Home Depot, which benefited in recent years from a strong housing market, face tougher sales comparisons in the second half as consumers deal with higher interest rates and oil prices.

"Those consumers that have money are spending," Lowe's President Robert Niblock said. "If anyone is getting squeezed, it's those who are on the lower end of the scale."

Lowe's forecast that same-store would rise 3% to 4% in the third quarter, compared with a 12% rise in the 2003 period.

The company said it expected third-quarter profit of 65 cents to 66 cents a share as total sales rise about 15%. For the year, it forecast profit of $2.69 to $2.71.

Lowe's shares rose $2.49 to $49.14 on the New York Stock Exchange, and Home Depot's stock rose 84 cents to $33.98.

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