Lowe’s Companies Inc. (LOW) recently posted soft second-quarter 2011 results and trimmed its fiscal 2011 projection. The quarterly earnings of 68 cents a share was a penny ahead of the Zacks Consensus Estimate and jumped 17.2% from 58 cents delivered in the prior-year quarter. However, on a reported basis, including one-time items, the quarterly earnings came in at 64 cents a share.
The Zacks Consensus Estimate had remained stagnant prior to the earnings release despite a downward revision in the estimates made by 5 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 third-quarter 2011 earnings in the range of 30 cents to 33 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 $1.48 and $1.54 per share compared with $1.56 and $1.64 forecasted earlier.
The current Zacks Consensus Estimate for third-quarter 2011 is 35 cents a share that is well above the company’s projection. Moreover, for fiscal 2011, the current Zacks Consensus Estimate is $1.63, 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 to better align with management’s new guidance range.
Net sales for the quarter crept up 1.3% to $14,543 million from $14,361 million delivered in the year-ago quarter. However, net sales fell short of the Zacks Consensus Revenue Estimate of $14,732 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 2% in the third quarter and fiscal 2011, respectively.
Comparable-store sales during the quarter inched down 0.3%. Lowe’s expects comparable-store sales to remain flat in the third quarter and to decline by 1% in fiscal 2011.
Lowe’s, which competes with The Home Depot Inc. (HD), indicated that gross profit remained approximately flat at $5,106 million, whereas gross margin contracted 37 basis points to 34.5% during the quarter.
During the quarter, Lowe’s opened 2 stores. The company expects to open 25 new stores during fiscal 2011. The company currently operates 1,753 stores.
Lowe’s is rationalizing its capital expenditures to improve its return on investment. We also appreciate its approach of cutting new store growth targets in the current consumer environment. Moreover, the company also announced the closure of seven underperforming stores.
The world’s second largest home improvement retailer, Lowe’s, ended the quarter with cash and cash equivalents of $568 million, long-term debt of $6,581 million, reflecting and shareholders’ equity of $16,779 million.
Currently, we have a long-term Neutral rating on the stock. However, Lowe’s holds the Zacks #4 Rank, which translates into a short-term Sell rating.
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