Lowe's Net Jumps 76% on Better Margin, Fewer Charges
7 minutes ago - Dow Jones News
--Earnings rise on better sales and profitability and lower charges
--Gross margin improves for first time in six quarters
--Shares rise premarket as results top expectations and revenue outlook improves
By Joan E. Solsman and Saabira Chaudhuri
Lowe's Cos. (LOW) fiscal third-quarter earnings jumped 76%, lifting results above Wall Street expectations, as the home-improvement retailer's revenue edged up and charges diminished.
Shares recently were up 4.8% at $33.50 premarket. Through Friday's close, the stock has climbed 26% so far this year despite a slump in results in the second quarter that sheared its outlook for 2012.
Lowe's and bigger rival Home Depot Inc. (HD) both benefited from disaster-preparation sales at the end of the period spurred by Hurricane Sandy in the Northeast. Lowe's had the added benefit of some initial Sandy repair demand, as its fiscal calendar closed a handful of days later than Home Depot's.
Lowe's same-store sales rose 1.8% in the latest period, better than the consensus analyst estimate for about 1%. It also lifted its sales expectations for the year, predicting same-store sales growth of about 1% and top-line revenue growth of 2% on a 52-week basis, compared with its prior view of 0.5% and 1%, respectively. Lowe's had a 53rd week in the prior fiscal year.
Lowe's has been reshaping its operations to compete more readily with its outperforming rival Home Depot. The No. 2 chain has been shifting to an everyday-low-price strategy and is reviewing all its product lines with vendors to improve assortment and reduce unit costs, ultimately aiming online selling to be a seamless part of an improved customer experience.
But in August, the company slashed guidance because executives underestimated how long it would take for customers to respond to the changes and for gross margins to fully reflect cost reductions.
However, in the latest period, gross margin widened to 34.3% from 34.1%, the first improvement in a year and a half. Importantly, the strengthening came despite the Sandy sales lift at the end of the period. Disaster-related items tend to have low margin. Total expenses fell 4.8%.
Monday, Chief Executive Robert A. Niblock said the company is "keenly focused" on improving its core business, characterizing the latest results as "solid" and the company's level of execution as "improving."
For the quarter ended Nov. 2, Lowe's reported a profit of $396 million, or 35 cents a share, compared with $225 million, or 18 cents a share, a year ago. The most-recent period included per-share charges amounting to five cents related to long-lived asset impairments, discontinued projects, and a change in the discount rate applied to self-insurance claims. The year-ago results included 18 cents in charges related to store closings, long-lived asset impairments, and discontinued projects.
Net sales edged up 1.9% to $12.07 billion, while same-store sales for the quarter were up 1.8%.
Analysts polled by Thomson Reuters had predicted per-share earnings of 35 cents on revenue of $11.92 billion.
Lowe's in September said it had withdrawn its takeover proposal for Rona Inc. (RON.T) after failing to negotiate a friendly deal with the board of Canada's biggest home-improvement retailer. Lowe's had approached Rona in early July with a C$14.50-a-share proposal, but its plan was immediately rebuffed by Rona's board and came up against political opposition in Quebec, Rona's home province.
Write to Joan E. Solsman at joan.solsman@dowjones.com and Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
