News Column

Lowe's Profit, Stock Rises; Executives Still Cautious

Nov. 19, 2012

Ely Portillo, The Charlotte Observer


Profits were up 76 percent at Mooresville, N.C.-based Lowe's Inc. in the third quarter, as the nation's second-largest home improvement retailer avoided the large one-time charges that dragged its results down last year.

Still, executives were guardedly optimistic Monday, as they detailed the challenges that lay ahead: The fiscal cliff, uncertainties about implementing health care reform regulation, and a sluggish housing market in which many consumers are still holding back on big-ticket purchases and major projects.

"The only uncertainty that's been clarified is who's going to be president and the members of Congress," CEO Robert Niblock told the Observer. "That level of uncertainty is behind us, but I do think this fiscal cliff, not knowing how it's going to be resolved or when it's going to be's front and center. I do think that will have an impact on consumer spending."

Lowe's reported a quarterly profit of $396 million, up from $225 million last year. Sales for the third quarter rose 1.9 percent, to $12.1 billion, and sales at stores open for a year or more increased 1.8 percent.

Executives said the company's improvement plan, designed to cut costs and make it more competitive with chief rival Home Depot, is yielding results. Last week, Atlanta-based Home Depot reported more rapid sales growth at stores open for a year or more, 4.2 percent, than Lowe's. Sales at Home Depot rose almost 5 percent, to $18.1 billion, for the quarter.

Lowe's is focused on expanding its online business, making stores more appealing to shop by offering more local product differentiation, changing display techniques in stores, and keeping the costs it pays for items from vendors lower.

The company also eliminated about 10 percent of its 5,200-strong corporate workforce at Mooresville and Wilkesboro via buyouts earlier this year.

"We are keenly focused on improving our core business," said CEO Robert Niblock, during a conference call with industry analysts. "Our level of execution is improving and we delivered solid results in the third quarter."

Last year, one-time charges stemming from that improvement plan stunted Lowe's third quarter results. The company recorded third quarter 2011 charges of $368 million for project discontinuations, asset impairments, and the closing of unproductive stores.

This year, such one-time charges totaled only $85 million during the quarter.

Consumers Still Skittish

Customer surveys indicate that many people are still holding off on major purchases, Niblock said. The vast majority of customers' upcoming projects are planned to be under $500, with many citing lack of income growth or a reluctance to borrow money for projects as a cause for their thrift.

"The majority of homeowners indicate their spending is staying the same or declining compared to a year ago," Niblock said. Still, with housing prices stabilized or rising in many markets, Niblock said many customers are "cautiously optimistic."

For the third quarter, big-ticket items saw the most rapid sales growth. Sales of items for over $500 rose 2.5 percent from the same period last year, sales of items from $50 to $500 rose 1.6 percent, and sales of items under $50 rose 1.3 percent.

Analysts greeted Lowe's results favorably. "The company is seeing signs of stability in sales," wrote Wayne Hood, an analyst with BMO Capital Markets, in a note to clients. "Furthermore, the company did well to keep inventory lean, as inventory was flat year-over year on 1.9% sales growth."

Lowe's stock was up almost 7 percent in trading Monday morning.

Source: (c)2012 The Charlotte Observer (Charlotte, N.C.) Distributed by MCT Information Services

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