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.
Shares in the country’s second-largest home-improvement chain fell $1.17, or 4 percent, to $28.35 in afternoon trading on the New York Stock Exchange, near the low end of a 52-week range of $26.90 to $34.85.
“We believe the home improvement sector is facing significant headwinds as housing turnover slows and interest rates rise,” Banc of America Securities analyst David Strasser wrote in a report Monday about Lowe’s quarterly report.
“We expect some weakness in the stock following the recent rally. We remain neutral as the first signs of a slowing housing market are beginning to take their toll on Lowe’s, and we have no visibility on how deep the downturn will go.”
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,” 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,” Niblock said.
However, Niblock 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.
The high temperatures that moved across the U.S. in early August improved air conditioner sales but hurt the sale of outdoor power equipment, lawnmowers and other goods used outside.
“When the conditions improved, so did our sales,” said Larry Stone, a senior executive vice president.
Analysts downplayed the effect weather had on business.
“The West Coast heat wave and hurricane comparisons may have been factors this quarter, but we attribute the sales slowdown to slowing existing home sale growth in the six month prior period and more difficult sales comparisons,” Merrill Lynch analysts wrote in a report Monday.
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.
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