Lowe’s profit up nearly 11%; a weaker 4th quarter is seen

Lowe’s Cos. reported a profit increase Monday of nearly 11% for its fiscal third quarter and warned that its fourth-quarter results would be weaker than expected.

But investors sent shares of the nation’s second-largest home improvement chain higher. One analyst said investors appeared to be looking beyond the slowing housing market and deflation in certain commodity categories.

“The point is, everyone knows about the economic bad news; now it’s time to look forward,” said Stephanie Hoff, senior retail analyst with brokerage Edward Jones. “This time next year we should see a rebound.”

Lowe’s shares rose 10 cents to $30.58.

The company, based in Mooresville, N.C., said it earned $716 million, or 46 cents a share, for the three months that ended Nov. 3, up from $646 million, or 40 cents, a year earlier.

Revenue rose to $11.2 billion from $10.6 billion a year earlier. But same-store sales, or sales in stores open at least one year -- a key measure of industry performance -- fell 4%.

“Much slower sales trends at Lowe’s lately do not bode well for prospects for the company over the next several quarters,” UBS analyst Brian Nagel said.

Analysts surveyed by Thomson Financial had expected net income of 43 cents a share on revenue of $11.49 billion.

Lowe’s net income was down from $935 million in the second quarter as home improvement chains face pressure from the weakening housing market.

For the fourth quarter, Lowe’s expects a 4% decline in sales from last year’s $10.8 billion, implying sales of $10.37 billion and missing analysts’ revenue expectations of $10.8 billion.

“With a declining housing market as the backdrop, we believe that Lowe’s will struggle with weak sales” over the next several quarters, Prudential analyst Mark J. Rowen wrote in a client note, adding that “shares will continue to be under pressure.”

Lowe’s and larger rival Home Depot Inc. benefited from strong U.S. home sales and hurricane-related demand a year ago, but they now face difficult comparisons as the housing market cools.

Last week Home Depot reported lower-than-expected third-quarter results and cut its full-year sales and profit forecasts, blaming the downturn in the housing sector.

Lowe’s said fewer damaging hurricanes and lower lumber prices also hurt third-quarter sales, and it forecast a same-store sales decline of 4% to 6% for the fourth quarter and a profit of 36 to 38 cents a share. Analysts expect 41 cents a share.

“If we had to declare a winner from Q3 results, it would be Home Depot,” Credit Suisse analyst Gary Balter said.

He said that although Lowe’s had better distribution and cleaner stores, it trailed Home Depot in sales per store and had not been as successful with contractors.

For the year, Lowe’s expects sales growth of 9% from last year’s $43.2 billion, implying sales of $47.13 billion. Wall Street was expecting sales of $47.64 billion.