Lowe’s fares well in second quarter

CHARLOTTE, N.C. Lowe’s Cos., the nation’s second largest home improvement chain, cited customer service and efficient operations Monday as reasons for a better-than-expected 9 percent rise in its second-quarter profit.

Still, decreasing sales at stores open at least a year, worsening trends in the housing market and uncertainty over credit quality led the Mooresville, N.C.-based retailer to trim its earnings outlook for the full year.

“We do face some near term challenges, but we do see some opportunity in today’s sales environment,” said Larry Stone, Lowe’s president and chief operating officer on a call with analysts.

The home improvement market has been slowing amid a slump in the housing sector.

Last week, bigger rival Home Depot Inc. said its second-quarter income dropped 14.8 percent as sales at its stores open at least a year dropped 5.2 percent.

“Despite the external pressures impacting our results, our continued focus on serving customers and executing our initiatives produced comparable store sales within our guidance range,” explained Robert Niblock, Lowe’s chairman and chief executive.

Lowe’s said it earned $1.02 billion, or 67 cents a share, for the three months ended Aug. 3, up from $935 million, or 60 cents a share, a year earlier.

Revenue rose to $14.17 billion from $13.39 billion a year earlier.

But same-store sales, or sales in stores open at least one year and a key measure of industry performance, fell 2.6 percent. The company had expected a same-store sales decline of 1 percent to 3 percent for the quarter.

Even so, the results came in ahead of Wall Street expectations. Analysts surveyed by Thomson Financial had been looking for net income of 61 cents a share on revenue of $14.13 billion.

Lowe’s shares rose $1.63, or 6.1 percent, to close at $28.50.

For the year ending Feb. 1, Lowe’s expects earnings of $1.97 a share to $2.01 a share. In May, Lowe’s cut its 2007 earnings estimates to a range of $1.99 to $2.03 a share.

“It’s minor, only 2 cents,” Niblock said. “Not knowing what all the ramifications are going to be with the housing and credit markets, we wanted to be prudent.”

Credit Suisse analyst Gary Balter said how much the current credit crunch affects foreclosures and spending in the sector is the larger question for investors.

“In some ways, the housing problems may just be beginning,” Balter wrote in a research note. “When one sees major mortgage originators back away from anything but pure vanilla financing, we assume that we face much deeper problems in housing.”

Niblock said markets in California and Florida, two locations generally considered most pressured by housing weakness, continue to perform significantly worse than average.

As Hurricane Dean makes its destructive march across the Caribbean, Niblock said Lowe’s is prepared to help wherever and whenever needed.

“While we hope no areas of the country face the devastating effect of a hurricane this season, if a storm does hit, our stores stand ready to help residences prepare for and recover from those storms,” Niblock said.

During the latest quarter, Lowe’s opened 26 new stores including two relocations. The company currently operates 1,424 stores in 49 states, an 11.1 percent increase over last year.

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