Lowe’s strong sales point to customers emboldened by housing recovery

Mooresville-based Lowe’s Cos. reported fourth-quarter sales Wednesday that topped expectations, indicating consumers are spending more on home-improvement projects as the U.S. housing recovery continues to gain momentum.

The retailer said sales were $13.2 billion for the quarter, above the $13.1 billion projection from Bloomberg-surveyed analysts, and up 5.6 percent from $12.5 billion in the same quarter a year ago, according to a securities filing. Earnings were in line with expectations.

The performance of home-improvement retailers is often considered a barometer of the health of the housing market. Home values are rising, home-building is up and employers are adding jobs – all trends that give customers the confidence to invest in their properties.

Lowe’s closest rival Home Depot, the world’s largest home improvement retailer, on Tuesday reported fourth-quarter sales and earnings that topped Wall Street forecasts. Analysts say Atlanta-based Home Depot’s professional customer business is bigger, so Lowe’s has been focusing on its offerings for professionals to narrow the gap with its rival.

“As we build those relationships (with pro and do-it-yourself customers) ... the brand will continue to resonate. It’s being done at a time when consumers are engaging with the home because of the improvement in home values that’s taking place,” Lowe’s Chief Executive Officer Robert Niblock said in an interview.

Lowe’s this year revamped its website for professional customers, for example. In a call with investors, executives also said Wednesday the retailer added a number of brands geared toward professionals, including Goldblatt masonry tools and Owens Corning insulation.

Looking ahead, gardening season and improving economic conditions should bode well for the home improvement industry overall, said Edward Jones analyst Robin Diedrich.

“There’s a lot of pent-up demand for projects, remodels and maintenance that was put off during the downturn in the housing market. So we’re still spending (on home improvement) at about half the rate we had before the downturn,” Diedrich said.

Impacting Lowe’s earnings for the quarter was a charge of $530 million the company recorded because it decided in January to exit a joint venture in Australia. Earnings for the quarter totaled $11 million, compared with $450 million in the same quarter a year ago, Lowe’s said.

Adjusted to account for that charge, earnings for the quarter were $541 million, or 59 cents a share, matching Wall Street forecasts.

The company said comparable sales, an industry term for sales at stores open at least one year, rose 5.2 percent for the fourth quarter and 4.8 percent for the full year. Each customer spent on average $67.15 each trip, up 1.5 percent from the fourth quarter in 2014, and the number of customer transactions rose 4 percent to 197.1 million for the quarter.

At a rate of about 25 percent, online sales are growing much faster than Lowe’s overall business, though they comprised only about 4 percent of the retailer’s total fourth-quarter sales. Lowe’s has said it’s focusing on making purchasing on all platforms, whether it’s in-store or online, as seamless as possible.

For the quarter, Lowe’s saw increased demand for exterior products as a result of an unseasonably warm winter, and at the same time, customers also started undertaking interior projects, Niblock said in a statement.

Product categories that saw above-average sales growth for the quarter, Lowe’s said, included lawn and garden, lumber and building materials, paint and appliances.

As of Jan. 29, Lowe’s operated 1,857 home improvement and hardware stores in the U.S., Canada and Mexico.

Lowe’s shares closed Wednesday at $68.62, up about 1 percent.

This story was originally published February 24, 2016 at 6:53 AM with the headline "Lowe’s strong sales point to customers emboldened by housing recovery."