RALEIGH, N.C. - Lowe's Cos. warned Monday that a slowing housing market will hurt its earnings for the rest of the year, sending its stock tumbling despite reporting an 11 percent profit for the second quarter.
"We believe the home improvement sector is facing significant headwinds as housing turnover slows and interest rates rise," Bank of America Securities analyst David Strasser wrote in a report Monday about Lowe's quarterly report.
Net income in the three months ended Aug. 4 rose to $935 million, or 60 cents per share, from $839 million, or 52 cents per share, in the year-ago period. Wall Street was looking for profit of 61 cents per share, according to a Thomson Financial poll of 19 analysts.
Sales rose more than 12 percent to $13.39 billion from $11.93 billion last year, slightly ahead of the Wall Street estimate of $13.38 billion. Sales at stores open at least a year - a closely watched gauge of retailers' health called same-store sales - rose 3.3 percent.
During the quarter it gained market share for flooring, appliances, outdoor power equipment and cabinets, Lowe's said, citing third-party estimates.
But orders for new homes have slowed in recent periods and sales of existing houses are slowing from record levels, putting pressure on sales at Lowe's and larger rival, The Home Depot Inc. Increased gas prices have also affected business, Chief Executive Robert Niblock said.
"Near-term pressures on the U.S. consumer have led to a more cautious outlook for the balance of the year," Mr. Niblock said in a prepared statement.
In a conference call with analysts, company officials said they were encouraged by continued low home mortgage rates and improving employment rates in the Midwest and elsewhere in the country.
"We remain very optimistic about the long-term opportunities in these markets," Mr. Niblock said.
Mr. Niblock, however, said most of the company's products are intended to help with maintenance and upkeep of older homes.
"That's what drives our business," he said during the conference call.
Lowe's forecast third-quarter earnings between 45 cents and 48 cents per share with same-store sales flat to up by 2 percent. Wall Street was looking for profit of 46 cents per share.
For the year, the company anticipates profit between $2 and $2.07 per share with same-store sales growth of 2 percent to 3 percent. That's down from its May forecast of $2.07 to $2.11 per share and same-store sales gains of 4 percent to 5 percent. Analysts expect profit of $2.05 per share on revenue of $48.5 billion.
Separately, Lowe's approved an increase in its share buyback program of up to $2 billion through January 2008. At about $29 per share, the authorization would buy about 69 million shares, or 4 percent of the company's 1.54 billion shares outstanding.
PROFIT UP, STOCK DOWN
SHRINKING PROFITS: Despite an 11 percent increase in profit for the second quarter, shares of Lowe's Cos. tumbled as the company cut its full-year earnings outlook.
WHY? Analysts blamed a slowing housing market, while Lowe's officials said higher energy prices and the housing market would hurt its sales for the rest of the year.
WHAT THE FUTURE HOLDS: Lowe's officials were encouraged by continued low home mortgage rates and improving employment rates. Analysts remained neutral, saying they didn't know how deep the downturn in the housing market would go.
- Associated Press