Lowe’s profit growth points to housing rebound

Mooresville-based Lowe’s reported third quarter earnings Wednesday that topped analysts’ expectations, pointing to further momentum in the U.S. housing recovery.

The nation’s second largest home improvement retailer reported a profit of $736 million, up almost 26 percent from the same quarter a year ago. On a diluted basis, earnings were 80 cents a share, above the 78 cents that analysts surveyed by Bloomberg had estimated.

Profit growth for the quarter was driven by stronger sales as customers spent more and as the total number of transactions increased, Lowe’s said. As home values rise across the country, consumers are feeling better about investing in their properties at a time when the job market is also strengthening.

“We like to say through the downturn, there was always that to-do list on the refrigerator. (Consumers) put a lot of it on hold until they felt better about the value of their home. That’s what we’re seeing now,” CEO Robert Niblock told the Observer in an interview.

For the quarter ending Oct. 30, sales totaled $14.4 billion, up 5 percent from a year ago and above the Wall Street estimate of $14.3 billion. Comparable sales, a retail industry term for sales at stores open at least one year, rose 4.6 percent from a year ago, Lowe’s reported.

The company’s strongest-performing categories included appliances, tools and hardware as well as seasonal living, which was boosted in particular by warmer and drier weather early in the quarter.

Lowe’s results come a day after rival Home Depot, the largest home improvement retailer in the U.S., also reported stronger-than-expected third quarter earnings.

Lowe’s earnings had missed analysts’ forecasts in four of the last nine quarters, while Home Depot had missed only once in that time, according to Bloomberg figures.

Narrowing the gap between Lowe’s and Home Depot “is a process,” though Lowe’s is getting there, said Robin Diedrich, a consumer discretionary analyst for Edward Jones. It’s doing that by investing in urban locations (Lowe’s opened two Manhattan stores in August), through growth of its Orchard Supply Hardware chain and through stepped-up marketing to professional customers, an area where it has typically lagged behind Home Depot.

Professionals make up a relatively small portion of the home improvement retailer’s shopper base but generate a larger percentage of revenue because they place bigger orders. In the second quarter, Lowe’s revamped its lowesforpros.com website and has started offering more of the merchandise professionals are asking for, Diedrich noted.

The home improvement retailers’ reports follow a weaker-than-expected opening of the retail earnings season last week from department stores like Macy’s and Nordstrom, casting an ominous tone on the start of the important holiday shopping season.

“(Home improvement) is a very good place in retail to be. The consumer looks fairly healthy to continue to spend, the housing market still looks really good. I think that all sets up for a continuation for above-normal sales growth,” Diedrich said.

As of Oct. 30, Lowe’s operated 1,849 home improvement and hardware stores in North America. The company says it expects to have added 15 to 20 more stores by the end of fiscal 2015.

Some of those new stores include new Orchard Supply locations, Niblock said. Lowe’s bought the California-based chain in 2013 and of the company’s goals has been to “re-modernize, re-furbish and re-merchandize,” stores, a task it recently completed. Now, Niblock said, Lowe’s can start expanding Orchard in a “more aggressive manner.”

Lowe’s stock closed up less than 1 percent on Wednesday, at $73.48 a share.

This story was originally published November 18, 2015 at 6:45 AM with the headline "Lowe’s profit growth points to housing rebound."