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Lowe's 2nd Quarter Is Better Than Expected

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The Associated Press

Published: August 19, 2008

CHICAGO - Repairs to drought-stricken flower beds and sales of freezers designed to hold bought-in-bulk food helped Lowe's Cos. post a better-than-expected second-quarter profit.

But the nation's faltering economy and sluggish housing industry still sent profit at the nation's second-largest home improvement chain down nearly 8 percent.

For the three months ending Aug. 1, results were boosted in part by consumers who undertook small outdoor gardening projects - repairing their yards from last year's drought - and bought freezers to accommodate bulk food purchases to cope with soaring grocery prices.

At the same time, Lowe's executives said, shoppers are beginning to buy pellet heaters in anticipation of higher fuel costs this winter.

"It was a tough environment out there," said Robert Niblock, chairman and chief executive. "I'm real proud of the team and the results we delivered in light of the environment."

Analysts said the second-quarter sales boost likely wasn't sustainable, as penny-pinching homeowners scaled back spending and do-it-yourself projects. It's a sentiment the Mooresville, N.C.-based company echoed as it lowered its third-quarter forecast, while raising its full-year outlook.

"All things considered, the quality of the second quarter earnings was good," Capital Markets analyst Wayne Hood told investors in a research note.

For the period, Lowe's earned $938 million, or 64 cents per share, in the three months ended Aug. 1. That's down from $1.02 billion, or 67 cents per share, during the same period last year. Sales rose 2.4 percent to $14.5 billion.

Analysts surveyed by Thomson Reuters expected a smaller profit of 56 cents per share on lower revenue of $14.1 billion.

The home improvement store said "relative" strength in seasonal lawn and garden and nursery sales gave the company a welcome boost as homeowners restored their lawns and repaired damage from last year's drought.

Meanwhile, stronger freezer sales began in the spring as commodities prices started to soar, raising grocery bills. Shoppers also used their economic stimulus checks during the quarter.

"We think it's consumers buying in bulk at some of the wholesale discount places to get lower unit costs on their food," Niblock said.

The company's larger rival, The Home Depot, reports earnings today.

Lowe's - like other companies in the sector - said sales of bigger-ticket items continue to fall, particularly in regional markets hurt most by the housing downturn.

Among the hardest-hit areas - such as Florida and California - same-store sales fell by double digits during the quarter.

Overall, the company's comparable-store sales - an important retail industry measure of sales in sites open at least a year - fell 5 percent.

Amid such economic uncertainty, Lowe's said it expects earnings per share to be in the range of 27 cents to 31 cents in the fiscal third quarter, which ends Oct. 31. Thomson Reuters says analysts were expecting 33 cents a share.

Lowe's expects total sales to increase 1 percent to 2 percent for the quarter, with same-store sales falling 5 percent to 7 percent.

For the fiscal year, Lowe's raised its earnings guidance to $1.48 to $1.56 per share.

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