Lowe’s earnings rally as housing market firms

By Yinmeng Liu

Shares of Lowe’s Companies Inc. soared after the building-products retailer, helped by the ongoing rebound in the U.S. housing market and the benefits of an internal efficiency drive, turned in higher-than-expected third quarter results.

For the quarter ended Oct. 31, the Mooresville, North Carolina-based retailer’s net income rose 17 percent to $585 million, or 59 cents per diluted share, from $499 million, or 49 cents per share in the year-ago period.  The per-share performance topped analysts’ forecast by 1 penny.

The world’s second largest home-improvement retailer said revenues climbed 5.6 percent to $13.7 billion from $13.0 billion in last year’s quarter.

“Existing home sales remain on a modest uptrend,” and home price growth “improved modestly from last quarter, suggesting home price appreciation in small to mid-sized markets continues, which bodes well for consumers in Lowe’s footprint,” Lowe’s Chairman, President, and CEO Robert Niblock said in a conference call Wednesday morning.

Jaime Katz, an analyst at Morningstar Equity Research, wrote in a research note published today that Lowe’s is benefiting from “improved sales and operations planning, better utilization of the store footprint, increased innovation in the brand portfolio, and healthy vendor relationships.”

Niblock also attributed the company’s positive earnings result to its solid “comparable store” sales, which climbed 5.1 percent this quarter.

Comparable store sales, or sales at stores open for at least a year, are a key performance measure for retailers and were especially meaningful for Lowe’s this quarter. The company trails closely behind its largest rival in the home improvement market, Home Depot, which reported a 5.2 percent comp growth in its third quarter results released Wednesday. However, Lowe’s’ performance this quarter is the closest the company has come to match Home Depot’s “comp” growth in more than four years.

Lowe’s on Wednesday also upgraded its full-year earnings forecast for this year to approximately $2.68, which exceeded analysts’ forecast of $2.63 by 5 cents. It also said officials expect comparable sales to increase 3.5 to 4 percent by January 30, 2015.

16 of the analysts covering the stock on Bloomberg suggested buying the stock, 13 urged investors to hold on to their shares, and only 1 analyst advised selling Lowe’s.

“We are pleased with our performance, and continue to be cautiously optimistic about the home improvement landscape,” Niblock said.

In Wednesday’s early afternoon trading, Lowe’s stock at New York Stock Exchange jumped $3.33, or 5.71 percent, to trade at $61.88.