Lowe's Cos Inc, the No 2 US home improvement chain by sales, reported lower-than-expected quarterly earnings on Wednesday as a long, harsh winter hurt sales growth, sending its shares down more than 5 percent. Lowe's performance during the first quarter is in sharp contrast to bigger rival Home Depot Inc whose earnings handily beat analyst estimates on Tuesday as the company benefited from higher spending on home improvement after a severe winter.
Explaining why Lowe's sales were held back during the quarter, Chief Executive Robert Niblock said the company did not anticipate the winter to be as long as it was and some of its spring promotions in stores were offered later than usual. "Our Spring Black Friday promotions in the Northeast fell under the second quarter because we felt that would give better returns on investment in advertising and marketing," Niblock said in an interview.
He said the company is off to a strong start in seasonal category sales in the second quarter. Lowe's total same-store sales rose 5.2 percent in the first quarter. Analysts on average had expected a 6.1 percent rise, according to Consensus Metrix. Lowe's maintained its full-year comparable sales growth forecast of 4.0-4.5 percent, but the outlook will be hard to achieve, analysts said. Lowe's first-quarter performance leaves little room for error and the road ahead will get tougher for the company as broader retail sales trends appear somewhat erratic to weak, Janney Capital Markets analyst David Strasser wrote in a note.
The retailer said it expects pressure on its gross margins in the second quarter due to additional costs related to shipment delays at West Coast ports and impact from increased promotions. Niblock said inventory levels for the second quarter remain comfortable and Lowe's is exploring other routes for its shipments in an effort to reduce its exposure to the West Coast ports in the long term.
Lowe's net income rose to $673 million, or 70 cents per share, in the quarter ended May 1 from $624 million, or 61 cents per share, a year earlier. Net sales rose 5.4 percent to $14.13 billion. Analysts on average had expected a profit of 74 cents per share and revenue of $14.28 billion, according to Thomson Reuters I/B/E/S. Lowe's shares were trading at $67 before the bell. Up to Tuesday's close, the stock had risen nearly 58 percent in the past 12 months, while Home Depot's shares had risen about 47 percent.
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