Lowe's Beats, Sales Miss - Analyst Blog

Lowe's Companies Inc. (LOW) recently posted better-than-expected third-quarter 2010 results. The quarterly earnings of 31 cents a share beat the Zacks Consensus Estimate of 30 cents and rose 34.8% from 23 cents delivered in the prior-year quarter.

The Zacks Consensus Estimate had remained stable prior to the earnings announcement in spite of 3 out of 26 analysts following the stock lowering their estimates in the last 30 days, and 2 analysts revising their estimates downward in the last 7 days.

On a reported basis, including one-time items, quarterly earnings came in at 29 cents a share, an increase of 26.1% from the previous-year quarter.

Lowe's said that it now expects the fourth quarter earnings in the range of 16 cents to 19 cents a share, and fiscal 2010 earnings between $1.37 and $1.40. The current Zacks Consensus Estimates of 18 cents and $1.40 per share for the fourth quarter and fiscal 2010, respectively, dovetail with the company's projections.

We witness that the growth in the top-line has decelerated. After increasing 3.7% year over year in second-quarter 2010, net sales for the quarter under review rose 1.9% to $11,587 million. The quarterly sales also missed the Zacks Consensus Revenue Estimate of $11,798 million.

Although the economy is showing signs of a revival, we believe that spending on big remodeling projects will likely remain under pressure until the housing market stabilizes, inventory levels normalize and consumer-spending rebounds.

Management now expects sales to increase between 2% and 4% in the fourth quarter and between 3% and 4% in fiscal 2010.

Lowe's, which competes with The Home Depot Inc. (HD), indicated that gross profit climbed 4.4% to $4,061 million, whereas gross margin expanded 90 basis points to 35.1% during the quarter. The growth in gross profit was aided by a jump in the top-line that shaved off the marginal increase of 0.5% in cost of sales.

The rate of growth in comparable-store sales also dropped during the quarter. After increasing 1.6% in the second quarter, comparable-store sales grew 0.2% in the quarter under review. Lowe's expects comparable-store sales to increase between a breakeven to 2% in the fourth quarter and in the range of 1% to 2% in fiscal 2010.

During the quarter, Lowe's opened 10 stores. The company expects to open 17 new stores in the fourth quarter and a total of approximately 42 stores in fiscal 2010. The company currently operates 1,734 stores.

Lowe's is rationalizing its capital expenditures to improve its return on investment. We also appreciate its approach of cutting new store growth targets in the current consumer environment. The company had opened 62 stores in 2009, significantly down from 115 stores opened in 2008 and 149 stores opened in 2007.

The world's second largest home improvement retailer, Lowe's, ended the quarter with cash and cash equivalents of $1,078 million, total long-term debt of $5,575 million and shareholders' equity of $18,892 million.

 
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