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Lowe’s misses expectations, but executives hopeful as housing strengthens

A customer leaves a Lowe's home improvement store in Charlotte in November 2014. Lowe's reported first quarter sales and earnings Wednesday that were up from a year ago but that fell below Wall Street expectations.
A customer leaves a Lowe's home improvement store in Charlotte in November 2014. Lowe's reported first quarter sales and earnings Wednesday that were up from a year ago but that fell below Wall Street expectations. AP

Mooresville-based Lowe’s Cos. reported first quarter earnings Wednesday that missed Wall Street expectations a day after its larger rival Home Depot reported earnings that topped analysts’ forecasts.

Lowe’s lower-than-expected sales for the quarter were a drag on earnings even as the U.S. economy improves and the housing sector strengthens. Still, Lowe’s executives believe rising incomes and home values will provide a boost to consumers already emboldened by lower gas prices.

“When you combine that increased disposable income with the fact that home prices are appreciating, it increases consumers’ confidence and willingness to invest in their homes on a discretionary basis,” Robert Niblock, Lowe’s CEO, told the Observer.

For the quarter that ended May 1, the nation’s second-largest home improvement retailer reported earnings of $673 million, up 7.8 percent from the first quarter of 2014. Earnings were 70 cents a share, below the forecast of 74 cents from Bloomberg-surveyed analysts.

Sales were lower than expected, too, and Lowe’s management said in a call with investors that it had anticipated more of a tailwind from a milder winter this year compared with last. The retailer’s quarterly sales were $14.1 billion, up 5.4 percent from a year ago but below the Wall Street consensus estimate of $14.3 billion.

Sales of appliances, outdoor power equipment and seasonal living products were above average for the quarter, while products in categories like kitchens, lumber and building materials, paint, tools and hardware were below average.

For Lowe’s stores open at least a year, sales rose 5.2 percent in the first quarter, while for the U.S. home improvement sector as a whole, same-store sales rose 5.3 percent.

Peter Keith, a senior research analyst at Piper Jaffray & Co., said even though Lowe’s first quarter results missed expectations, same-store sales growth is still “quite strong” in what has been a relatively sluggish retail earnings season so far this year.

“To us it clearly points to a trend that consumers are shifting wallet share spending toward the home improvement space. We think that’s a dynamic that will remain in place for the remainder of the year and most likely through next year,” Keith said.

Lowe’s has faced scrutiny about the safety of some of its flooring products that contain chemicals like formaldehyde and phthalates, though earlier this month it announced steps to phase out such products. Niblock said the safety concerns didn’t have a “meaningful impact” on flooring in the first quarter.

Citing improvement in the housing market, Lowe’s top competitor, Home Depot – the largest home improvement retailer in the U.S. – on Tuesday reported first-quarter earnings and revenue that topped Wall Street expectations.

As of May 1, Lowe’s operated 1,843 stores in the U.S., Canada and Mexico. The company expects to open 15 to 20 home improvement and hardware stores this year.

Shares in Lowe’s closed Wednesday at $68.50, down more than 4 percent.

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Twitter: @katieperalta

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