Lowe’s reports lower profits despite strength in home sector

Lowe's, which has more than 2,370 home improvement and hardware stores, reported lower first-quarter earnings despite strength in the housing sector and a strong sales report by rival Home Depot. Photo courtesy of Lowe's

May 24 (UPI) — Lowe’s reported lower first-quarter earnings despite strength in the housing sector and a strong sales report by rival Home Depot.

The home improvement store chain’s net earnings for the first quarter were $602 million, down from $884 million in 2016, the company announced.

Total first-quarter sales rose 10.7 percent to $16.9 billion from $15.2 billion the same period last year, which was $100 million less than forecast by Thomson Reuters.

Same-store sales were up 1.9 percent, but FactSheet had forecast 2.9 percent growth.

“From a stock perspective, the headline may not spark a lot of excitement, as expectations had moved up into the print and the bar was set higher by [Home Depot],” Credit Suisse analyst Seth Sigman wrote in a note to clients obtained by CNBC. “But, in our view, the story hasn’t been Q1; with easier sales and comparisons starting in Q2, and healthy underlying trends, supporting potentially both EPS and valuation upside as we move through this year.”

Stock shares fell as much 7 percent in Nasdaq trading after the news. At mid-day, it was trading at $79.69, down 3.2 percent.

Lowe’s reaffirmed that it expects revenue to increase roughly 5 percent by the end of the year, with sales at established stores projected to rise 3.5 percent. Lowe’s said it expects to add about 35 home improvement and hardware stores this year. It plans to boost earnings by offering more services to its professional customer base as well as cost-cutting that includes layoffs, the Charlotte Observer reported.

“A solid macroeconomic backdrop, combined with our project expertise, drove above-average performance in indoor projects,” CEO Robert Niblock said in a statement. “We also continued to advance our sales to pro customers, delivering another quarter of comparable sales growth well above the company average.”

During the first quarter, competitor Home Depot’s same-store sales increased 5.5 percent. The company expects to rise 4.6 percent for this year.

“I think Home Depot is the better performing company,” Oppenheimer analyst Brian Nagel told CNBC. “We saw another indication of that today.”

Nagel said Home Depot is better at “a lot of little things,” including adjusting merchandise based on an “erratic” weather environment.

Lowe’s, founded in 1946 and based in Mooresville, N.C., has more than 2,370 home improvement and hardware stores and employs more than 290,000 people, according to its website. Fiscal year 2016 sales were $65 billion.

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