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Lowe's (LOW)
Lowe's Earnings Drop 22 Percent
The global economic downturn has tested a number of industries over the last year. Retailers have been some of the hardest hit as consumers sliced their spending habits in half. With the housing market still in shambles, new construction and home improvements have slowed to a dramatic halt. As a result, Lowe's, the second-largest U.S. home-improvement retailer, posted a 22% drop in earnings. Profit dropped to $476 million, or 32 cents a share, from $607 million, or 41 cents, a year earlier. How did these results compare with analysts' expectations? What is Lowe's doing to help improve earnings during these difficult times? Are better results on the horizon for this retailer?
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| Stock Analysis |
Home improvement retailers have been trying their best to cope with these tough times. Some have eliminated employees and some have closed down stores. Lowe's main competitor, Home Depot (HD: Charts, News, Offers) has done both. The company announced in January 2009 that it decided to eliminate 7,000 jobs by closing its specialty design stores such as Home Expo. During the first quarter of 2009 Lowe's chose a slightly different approach and it appears their efforts may have paid off. The company may have reported a steep decline in earnings, but it still managed to beat analysts' expectations. Analysts, on average, had estimated the retailer would earn 25 cents a share in the first quarter. How was the company able to beat expectations? Analysts knew that the housing market and the economy would not make a total recovery by the first quarter of 2009, so the forecasts were low. A rebound in the housing market is one of the main things that must occur for Lowe's to regain the profitability that it once had. Recent reports on the housing sector and consumer confidence have shown improvement and as a result sales were not as dismal as expected.
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Lowe's was also able to beat analysts' expectations thanks to two main factors. First, the company received a surge in consumers purchasing outdoor improvement items and plants. CEO Robert Niblock said that this area outperformed revenue from indoor goods. Plants have always been one of the most profitable items for Lowe's. Second, the company chose to open additional stores in the first three months of fiscal 2009 rather than shut stores down. During the first 3 months, Lowe's opened 21 stores and plans to open an additional 18 more stores during the second quarter. However, same-store sales are still expected to decline 4 percent to 8 percent for the year.
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Better results for the company are hard to pinpoint as this time. If the economy and consumer confidence keeps improving, the company should definitely be able to deliver better results. As the weather warms up, the company and analysts are expecting to see more consumers flocking to the retailer as they take on home improvement projects. Lowe's appears confident and cautious about the future. Lowe's now expects to earn $1.13 per share to $1.25 per share. It had previously expected earnings of $1.04 per share to $1.20 per share. CEO Robert Niblock reiterated that the company remains cautious despite recent positive developments. He said, “In recent weeks we have seen consumer confidence improve, housing turnover show signs of a bottom in certain markets, and home prices slow their decline, but since many of these variables remain at or near historic lows, we will continue to plan conservatively and manage expenses appropriately.”
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Lowe's ability to remain profitable definitely is contingent upon the current state of the economy and its ability to offer better deals than competitors. Home Depot has also raised its full-year forecast, so Lowe's will have to remain aggressive to avoid losing customers and more revenue. Its shares traded at $20.00 in early morning trading, up from Friday's New York Stock Exchange close of $18.45.
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