- 15Nov
(Reuters) - Home improvement chain Lowe's Cos (LOW.N) shed light on its efforts to increase margins and market share amid sluggish sales growth, sending its shares higher.
The company, which reported lower-than-expected quarterly sales and forecast a full-year profit below Wall Street estimates, said it had gained share from market leader Home Depot (HD.N) in some categories in the latest quarter.
Lowe's plans to focus on tailoring inventory to specific markets and making other changes to boost pricing.
The news pushed shares of the company up as much as 3.6 percent, reversing a decline before the market opened.
Sales at Lowe's, which ranks second behind Home Depot Inc, rose 1.9 percent to $11.59 billion, but missed the average estimate of $11.75 billion, according to Thomson Reuters I/B/E/S. Sales at stores open at least a year rose 0.2 percent.
Consumers "remain cautious and continue to rationalize the scope of their projects, or in many cases delay projects, until they have better clarity about their personal financial situations, the value of their homes and the overall macroeconomic outlook," Chief Executive Officer Robert Niblock said on a conference call.
Like investors, analysts said they were focusing on Lowe's margins, noting the retailer has kept a tight hold on inventory and was taking steps to give itself more flexibility over its pricing.
"Lowe's has the internal initiatives in the works to drive margin in a slow growth environment, such as localizing inventory and zone pricing," Wall Street Strategies analyst Brian Sozzi said in a note.
On Monday, Lowe's said it sees operating margin, or earnings before interest and taxes as a percentage of sales, rising 50 to 60 basis points in the current fiscal year.
Shares of Lowe's were up 1.2 percent at $21.95 in morning trading after rising as $22.48, while Home Depot, which is due to report quarterly results on Tuesday, rose 0.8 percent.
"Sales (at Lowe's) were a little light, but I don't think that's surprising," said Barclays analyst Michael Lasser, citing recent commentary on softness in housing-related products from other retailers as home prices remain weak.
SALES STILL WEAK
Consumers have been taking up long-delayed maintenance and repair projects for their homes, but they continue to put bigger renovation plans on ice amid falling housing prices and macroeconomic concerns.
Sales of previously owned U.S. homes rose a greater-than-expected 10 percent in September, but remained at depressed levels that point to a painful and protracted recovery for the housing market.
There were also fewer takers for expensive washers and dryers than in the first half of the year, when many customers replaced older appliances with energy-efficient ones to take advantage of a government stimulus. As a result, Lowe's had to get more promotional to move these products.
The company said net income rose to $404 million, or 29 cents a share, in the third quarter ended October 29 from $344 million, or 23 cents a share, a year earlier.
Excluding items, the profit was 31 cents a share, while analysts on average were expecting 30 cents.
For the full year, the company forecast earnings of $1.37 to $1.40 a share, while analysts on average were expecting $1.41.
Lowe's said it expected sales to rise 2 percent to 4 percent this year.
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