Lowe’s Companies, Inc. (LOW) recently posted lower-than-expected first-quarter 2011 results on both top and bottom lines, reflecting sluggish economic recovery and difficult comparison on account of government stimulus programs that benefited the prior-year quarter.
The quarterly earnings of 34 cents a share missed the Zacks Consensus Estimate of 36 cents and remained flat compared with the prior-year quarter. The quarterly earnings lies at the low end of the company’s guidance range of 34 cents to 38 cents a share.
The Zacks Consensus Estimate had remained stagnant prior to the earnings release despite a downward revision in the estimates made by 4 out of 23 analysts covering the stock in the last 30 days. None of the analysts have raised their projections.
Lowe’s said that it now expects second-quarter 2011 earnings in the range of 65 cents to 69 cents a share. However, the company lowered its fiscal 2011 earnings outlook due to weaker-than-expected results. The company now expects fiscal 2011 earnings between $1.56 and $1.64 per share compared with $1.60 and $1.72 forecasted earlier.
The current Zacks Consensus Estimate for second-quarter 2011 is 68 cents a share that dovetails with the company’s projection. However, for fiscal 2011, the current Zacks Consensus Estimate is $1.69, ahead of the company’s guidance range.
Consequently, we could witness a correction in the Zacks Consensus Estimate in the coming days with analysts tweaking their estimates for full year to better align with management’s new guidance range.
Lowe’s hinted that net sales for the quarter dropped 1.6% to $12,185 million from the year-ago quarter, and also fell short of the Zacks Consensus Estimate of $12,515 million.
Although the economy is showing signs of a revival, we believe that spending on big remodeling projects will likely remain under pressure until the housing market stabilizes, inventory levels normalize and consumer-spending rebounds.
Management now expects sales to increase approximately 4% in the second quarter and fiscal 2011, respectively.
Comparable-store sales during the quarter dipped 3.3%. Lowe’s expects comparable-store sales to rise 2% in the second quarter and to increase between 0% and 1% in fiscal 2011.
Lowe’s, which competes with The Home Depot, Inc. (HD), indicated that gross profit slipped marginally by 0.9% to $4,319 million, whereas gross margin expanded 20 basis points to 35.4% during the quarter.
During the quarter, Lowe’s opened 4 stores, including 1 relocation and shut 1 store. The company expects to open 25 new stores during fiscal 2011. The company currently operates 1,751 stores.
The world’s second largest home improvement retailer, Lowe’s, ended the quarter with cash and cash equivalents of $1,496 million, total long-term debt of $6,576 million, reflecting debt-to-capitalization ratio of 27.4% and shareholders’ equity of $17,459 million.
Currently, we have a long-term Neutral rating on the stock. Moreover, Lowe’s holds the Zacks #3 Rank, which translates into a short-term Hold rating.
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