Lowe’s Companies Inc. (LOW), the world’s second largest home improvement retailer, recently posted better-than-expected third-quarter 2011 results, thereby raising its fiscal 2011 sales outlook.
Let’s Unveil the Picture
The quarterly earnings of 35 cents a share beat the Zacks Consensus Estimate by a couple of cents and jumped 12.9% from 31 cents delivered in the prior-year quarter. However, on a reported basis, including one-time items, the quarterly earnings came in at 18 cents a share, down 37.9% from 29 cents earned in the year-ago quarter.
Net sales for the quarter crept up 2.3% to $11,852 million from $11,587 million delivered in the year-ago quarter. Net sales also comfortably surpassed the Zacks Consensus Estimate of $11,690 million. The company had earlier forecasted sales to increase approximately 2% during the quarter.
Comparable-store sales during the quarter inched up 0.7%. Management had earlier predicted comparable-store sales to remain flat in the quarter.
Lowe’s indicated that gross profit edged down 0.6% to $4,037 million, whereas gross margin contracted 100 basis points to 34.1% during the quarter.
Stores Update
During the quarter, Lowe’s opened 8 stores. The company expects to open 25 new stores during fiscal 2011. At the end of the quarter, the company operated 1,744 stores in the United States, Canada and Mexico.
Other Financial Aspects
Lowe’s ended the quarter with cash and cash equivalents of $675 million, total long-term debt of $6,615 million, reflecting debt-to-capitalization ratio of 28.2%, and shareholders’ equity of $16,809 million. The company generated about $3,892 million in cash flow from operations during the first-nine months of fiscal 2011.
Strolling Through Guidance
Lowe’s said that it now expects fourth-quarter 2011 earnings in the range of 20 cents to 23 cents a share. For fiscal 2011, management expects earnings between $1.57 and $1.60 per share, excluding charges of 20 cents related to store closings and discontinued operations.
The current Zacks Consensus Estimates are 23 cents for the fourth quarter and $1.59 per share for fiscal 2011.
Management now expects sales to increase approximately 8% in the fourth quarter and between 2% and 3% in fiscal 2011. Earlier, Lowe’s had forecasted fiscal 2011 sales to increase by approximately 2%.
Lowe’s, which faces stiff competition from The Home Depot Inc. (HD), expects comparable-store sales to remain flat or up 1% in the fourth quarter but to decline by 1% in fiscal 2011.
Let’s Conclude
With the global economic environment still struggling, 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.
Lowe’s recently undertook initiatives such as reformation of its store and merchandising operations to enliven competence, augment operational efficiencies and enrich the shopping experience for customers. All these benefited the company to some or the other extent.
The company also replaced its old tag line “Let’s Build Something Together” with a new one “Never Stop Improving”, thereby reflecting the company’s new brand strategy. We believe that the new tag line would help the company to build a sense a confidence among its consumers.
The new tag line mirrors the company’s endeavor of improving and developing innovative ideas to cater to the constant changing demands and preferences of consumers. Lowe’s also initiated an online tool, “MyLowes”, to aid consumers better manage their homes and other home remodeling projects.
We believe that “Never Stop Improving” campaign and “MyLowes” may help Lowe’s in gaining a competitive advantage.
Currently, we have a long-term ‘Neutral’ rating on the stock. Moreover, Lowe’s holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating, and correlates with our long-term view.
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