Lowe’s rides housing recovery to higher profit

MOORESVILLE, N.C. — Lowe’s second-quarter net income rose 26 percent as Americans feeling good about sprucing up their homes again snapped up indoor and outdoor home products and supplies.

The second-largest home-improvement chain’s results beat Wall Street expectations. It also raised its full-year earnings and revenue forecasts Wednesday, and the stock rose $1.73, or 3.9 percent, to close at $45.81.

The strong performance comes a day after rival Home Depot Inc.’s results also topped analysts’ estimates and it lifted its outlook. It shows that as home values improve Americans are stepping up home improvement projects.

“Home improvement demand was strong during the quarter,” said Lowe’s CEO Robert Niblock. “We drove a healthy balance of ticket and transaction growth, and delivered solid performance across all product categories.”

After slumping for years, the housing market has shown choppy but steady improvement this year. On Friday, the Commerce Department said that builders began work on houses and apartments at a seasonally adjusted annual rate of 896,000 in July. That was up 6 percent from June, though below a recent peak of more than 1 million in March.

And on Thursday the National Association of Home Builders/Wells Fargo builder sentiment index reported that confidence among U.S. homebuilders is at its highest level in nearly eight years, fueled by optimism that demand for new homes will drive sales growth into next year.

Still, there are indications that rising mortgage rates may give potential buyers a reason to pause.

For the period ended Aug. 2, Lowe’s earned $941 million, or 88 cents per share. That’s up from $747 million, or 64 cents per share, a year ago.

Revenue increased 10 percent to $15.71 billion from $14.25 billion.

Analysts surveyed by FactSet expected earnings of 79 cents per share on revenue of $15.07 billion.

Revenue at stores open at least a year climbed 9.6 percent, the biggest increase since 2004. This metric is a key indicator of a retailer’s health because it excludes results from stores recently opened or closed.

Lowe’s has revamped its pricing structure, offering what it says are permanent low prices on many items across the store instead of fleeting discounts. It has also focused on hiring more workers and improving its inventory.

ISI analyst Greg Melich said it was Lowe’s best quarter in a while, and while Lowe’s should benefit from the rising tide of housing recovery, its execution will be key. He kept his “Buy” rating on the stock.

Lowe’s now anticipates fiscal 2013 earnings of about $2.10 per share, with revenue up approximately 5 percent. The company previously predicted earnings of about $2.05 per share, with revenue up approximately 4 percent. Based on 2012’s revenue of $50.52 billion, the new outlook implies about $53 billion in revenue.

Wall Street expects earnings of $2.10 per share on revenue of $52.17 billion.

Lowe’s announced Tuesday that its acquisition of Orchard Supply Hardware has received approval from the U.S. Bankruptcy Court in Delaware.

Orchard is a Sears spinoff that filed for bankruptcy in June. That same month the San Jose, Calif., company received an approximately $205 million offer from Lowe’s Cos. for 72 of its stores. The “stalking horse” bid also included the assumption of payables owed to nearly all of Orchard’s suppliers.

Lowe’s expects to close on the buyout by month’s end. Orchard will continue to run as a separate, standalone business. It will keep its brand name, as well as its San Jose headquarters.

Lowe’s Cos., based in Mooresville, N.C., had 1,758 stores in the U.S., Canada and Mexico at quarter’s end.

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