May 22, 2007 3 min read

CHARLOTTE, N.C. (AP) – Profit at Lowe’s Cos. fell 12.1 percent in the first quarter, disappointing analysts’ expectations and depressing shares of the country’s second-largest home improvement retailer. The Mooresville, N.C.-based company said mixed weather and a continued housing slump hurt sales. Rival Home Depot Inc., the nation’s largest home improvement store chain, said last week its first-quarter income dropped 29.5 percent.

Lowe’s had net income of $739 million, or 48 cents a share, for the three months ended May 4, down from $841 million, or 53 cents a share, a year earlier.

Revenue rose to $12.2 billion from $11.9 billion a year earlier. Same-store sales, or sales in stores open at least one year, fell 6.3 percent.

The company, which opened 15 stores in the quarter, had expected a same-store sales decline of 2 percent to 4 percent for the quarter. The key measure of performance compared with a drop of 7.6 percent at Home Depot.

“Results that Lowe’s announced today reflect struggles at the company amidst a challenging environment for home retail,” wrote UBS analyst Brian Nagel in a research note. “We believe that sluggish trends at Lowe’s recently portend further weakness.”

Analysts surveyed by Thomson Financial had been looking for net income of 49 cents a share on revenue of $12.4 billion.

The retailer also cut its full-year earnings forecast. It said it expects to earn $1.99 to $2.03 a share in fiscal 2008, down from the $2.02 to $2.09 a share it said it expected in February.

Lowe’s estimates total sales will grow about 7 percent this fiscal year, while same-store sales are projected to fall 1 percent to 2 percent. The retailer also said it plans to open 150 to 160 stores.

The company will “remain cautiously optimistic in our outlook,” said Robert A. Niblock, Lowe’s chairman and chief executive said on a call with analysts.

He said the decline in sales was a result of a difficult housing market, significant deflation in lumber and plywood prices and tough comparisons to last year, when rebuilding efforts were under way after an especially damaging hurricane season.

On top of the housing market downturn, mild temperatures and solid sales in March were more than offset by record cold and wet weather across much of the United States during the first two weeks of April.

“While the weather improved in the second half of the month, the drag created by the first two weeks substantially contributed to our sales shortfall,” Niblock said.

Some analysts said Monday that Lowe’s isn’t in as bad as shape as its quarterly numbers showed.

“The company’s optimism about Q2 leads us to believe that, after the April weather fiasco, sales have bounced back to plan,” Banc of America Securities analyst David Strasser wrote in a research note. “We believe Lowe’s is capable of weathering the downturn better than most given market share gains and cost discipline.”

Lowe’s said it expects to earn 62 cents to 64 cents a share for the second quarter and show sales growth of 6 percent to 7 percent. The company also anticipates that same-store sales will decelerate at a slower pace than in the first quarter, falling 1 percent to 3 percent.

Shares of the retailer fell 79 cents, or 2.42 percent, to $31.88 Monday.

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On the Net:

Lowe’s Cos.: http://www.lowes.com

AP-ES-05-21-07 1647EDT