Lowe's Misses Zacks Estimate - Analyst Blog

Lowe’s Companies, Inc. (LOW) recently posted lower-than-expected second-quarter 2010 results. Quarterly earnings of 58 cents per share missed the Zacks Consensus Estimate by a penny but rose 13.7% from 51 cents in the prior-year quarter.

The growth in the top-line and cost containment effort aided bottom-line growth. Lowe’s said that it now expects third-quarter 2010 earnings in the range of 28 cents to 32 cents per share, and fiscal year 2010 earnings between $1.38 and $1.45 per share.

The company’s third-quarter and fiscal 2010 guidance dovetails with the current Zacks Consensus Estimate of 31 cents and $1.42 per share, respectively.

The growth in the top-line has decelerated. After increasing 4.7% year over year in the first-quarter 2010, net sales for the quarter rose 3.7% to $14,361 million. The quarterly sales also missed the Zacks Consensus Revenue Estimate of $14,522 million.

Management now expects sales to increase between 3% and 5% in the third quarter and approximately 4% in fiscal 2010.

Despite an increase of 3.7% in cost of sales, gross profit climbed 3.8% to $5,006 million thanks to top-line growth, whereas gross margin expanded 10 basis points to 34.9% during the quarter.

The rate of growth in comparable-store sales also dropped during the quarter. After increasing 2.4% in the first quarter, comparable-store sales grew by 1.6%. Lowe’s expects comparable-store sales to grow between 1% to 3% in the third quarter and approximately 2% in fiscal 2010.

During the quarter, Lowe’s opened 4 stores and closed one location. The company expects to open 12 new stores in the third quarter and a total of 40 to 45 stores in fiscal 2010.

The world’s second largest home improvement retailer ended the quarter with cash and cash equivalents of $1,191 million, total long-term debt of $5,570 million and shareholders’ equity of $19,213 million.

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. Although the economy is showing signs of 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.