Monday, May 18, 2009

Lowe’s Tops Analysts’ Estimates on Outdoor Products

Lowe’s Cos., the second-largest U.S. home-improvement retailer, posted first-quarter earnings that fell less than analysts estimated, helped by sales of more- profitable shrubs and flowers. The shares gained.

Sales of goods for smaller outdoor home-improvement projects accounted for 35 percent of revenue, Chief Executive Officer Robert Niblock said today on a conference call with investors and analysts. The category outperformed indoor goods, he said.

Plants are among the more profitable items the retailer sells, said David Schick, an analyst at Stifel Nicolaus & Co. in Baltimore. Gross margin, the share of sales after subtracting the cost of goods sold, widened to 35.46 percent from 34.69 a year ago and 33.73 in the fourth quarter. The company also offered fewer discounts in the period.

“This was a big move and it indicates they were better at selling seasonal goods,” Schick said in a telephone interview. “Gross margin was a concern coming out of last quarter.”

Lowe’s advanced $1.41, or 7.6 percent, to $19.86 at 9:43 a.m. in New York Stock Exchange composite trading, the steepest increase since April 2. Home Depot Inc. gained $1.11, or 4.5 percent, to $25.51. Before today, Lowe’s dropped 14 percent this year after falling in each of the past three years.

Profit dropped 22 percent to $476 million, or 32 cents a share from a year ago. Sales in the three months ended May 1 declined 1.5 percent to $11.8 billion, the Mooresville, North Carolina-based company said today in a statement. Analysts had projected profit of 26 cents on sales of $11.6 billion, the average of estimates compiled by Bloomberg.

Comparable-Store Sales

Sales in stores open at least 13 months fell for the 11th consecutive quarter, dropping 6.6 percent. Colin McGranahan, an analyst with Sanford C. Bernstein & Co. in New York, estimated a decline of 10 percent.

Lowe’s and bigger Home Depot are competing for consumers as homeowners take on fewer large projects during the worst housing slump since the 1930s. Home Depot reports earnings tomorrow.

Lowe’s boosted the range of its profit forecast for the year that ends Jan. 29 to as much as $1.25 a share. Its February forecast was for at most $1.20. Analysts estimated $1.11.

It narrowed its sales forecast to a decline of 2 percent to an increase of 1 percent. The earlier forecast included an increase of as much as 2 percent.

Niblock said the company has seen positive signs, including indications of a bottom in the housing market decline “in certain markets.” However, many economic indicators remain “at or near historic lows,” he said in the statement.

The retailer forecast profit of 51 cents to 55 cents a share this quarter. Analysts estimate 50 cents.