Lowe’s sales top forecasts, but earnings miss mark

Mooresville-based Lowe’s Cos. reported second-quarter earnings Wednesday that were lower than expected because of higher costs and taxes. Sales topped Wall Street forecasts, though, as consumers spent more on big-ticket items such as kitchen appliances.

Lowe’s, the second-biggest home improvement retailer in the U.S., said sales were up despite regional weather-related weakness, such as the drought in California and record rainfalls in Texas. The retailer said it continues to focus on improving offerings for its professional customers, a sector in which it has generally lagged behind rival Home Depot.

For the three months that ended July 31, Lowe’s reported earnings of $1.13 billion, up from $1.04 billion in the same quarter last year, according to a securities filing.

On a diluted basis, earnings were $1.20 a share, 4 cents below the consensus estimate from 24 analysts surveyed by Bloomberg. Earnings this quarter were up from $1.04 per share in the same quarter last year.

Lowe’s said its income tax rate increased to 38.1 percent from 37.3 percent, and selling and general expenses rose 2.63 percent from a year ago. A big part of that, the management team said, was because of the leases of former Target stores and a distribution center in Canada that Lowe’s took over in the second quarter.

Strengthening in the housing market should continue to provide a boost for home improvement retailers. On Tuesday, a Commerce Department report showed U.S. builders started work on single-family homes in July at the fastest pace in eight years.

“Key drivers of the home improvement industry remain supportive for growth,” Robert Niblock, Lowe’s chairman, president and chief executive officer, said in a call with investors Wednesday morning.

Sales for the quarter totaled $17.35 billion, beating the Wall Street estimate of $17.27 billion and up from $16.60 billion in the second quarter of 2014.

Same-store sales – a retail term referring to stores open at least a year – rose 4.3 percent from a year ago. Analysts had expected a 3.9 percent gain. By comparison, same-store sales rose 4.2 percent at rival Home Depot.

Sales were strongest in appliances, kitchen items, outdoor power equipment and seasonal living products, Lowe’s said, and below average in many of the outdoor categories likely hard hit by bad weather in some regions, such as lawn and garden and exterior paint.

The Lowe’s profit miss comes a day after Home Depot, the largest home improvement retailer in the U.S., reported second-quarter results that topped expectations, thanks to rising home values and an improving job market.

Lowe’s earnings have fallen short of analysts’ forecasts in four of the last eight quarters, and Home Depot has only missed once in that time, according to Bloomberg figures.

Robin Diedrich, consumer discretionary analyst for Edward Jones, identified two ways in which Lowe’s can catch up to its larger rival Home Depot: Improve its business for pro customers and improve store locations by focusing more on denser, urban areas.

“Over time, if they’re successful with those initiatives, I think that gap will close more,” Diedrich said.

Lowe’s recently revamped its website for pro customers, who make up a relatively small portion of its shopper base but generate a larger percentage of revenue because they place bigger orders. It also has worked to offer more easily accessible locations and more of the brands its pro customers have said they wanted.

“In the Charlotte market, we have plenty of convenient locations for them,” Niblock said in a call with the Observer. “If you go to some of the other major metro markets in the U.S., we don’t have quite the density that ideally they would like us to have.”

Lowe’s operated 1,846 stores in the U.S., Canada and Mexico as of July 31. The company said it expects to add 15 to 20 home improvement and hardware stores this year.

In after-hours trading Wednesday, Lowe’s shares were up 1.85 percent at $74.37.

This story was originally published August 19, 2015 at 7:04 AM with the headline "Lowe’s sales top forecasts, but earnings miss mark."