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Amid 'Tough' Times, Lowe's Reports 18% Drop In Profit

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The Associated Press

Published: May 20, 2008

CHARLOTTE, N.C. - If you are looking for a sign the economy is still in need of repair, you can find it at Lowe's Cos.

A struggling economy and continued turmoil in the housing market drove the nation's second-biggest home improvement retailer to report a nearly 18 percent drop in first-quarter earnings from a year earlier and lower its guidance for the year Monday.

Investors may see similar results from larger rival Home Depot Inc., which is expected to post lower first-quarter profit today, pressured by declining sales and costs tied to store closures and a scale-back of future openings.

"It's been a challenging sales environment," said Lowe's Chairman and Chief Executive Officer Robert A. Niblock. "As we continue on in a tough environment, with rising other costs for the consumer, be it food or fuel or whatever, what happens on the employment front has yet to be seen and can certainly be more tough on more consumers."

Mooresville, N.C.-based Lowe's said net profit in the period ended May 2 fell 17.9 percent to $607 million, or 41 cents per share, from a year earlier. Sales slipped to $12 billion from $12.2 billion a year ago.

Analysts surveyed by Thomson Financial had been looking for net income of 40 cents a share on revenue of $12.4 billion. Estimates usually exclude one-time items.

"These results should not prove terribly surprising," wrote Goldman Sachs analyst Matthew J. Fassler in a client note.

The home improvement sector has been hurt as consumers pulled back on renovation spending in the face of falling home values, tighter credit requirements and higher prices for basic items, such as food and gasoline.

Lowe's shares fell 64 cents to $24.25 Monday. Shares of Home Depot fell 23 cents to $28.87.

Lowe's said comparable store sales - a closely watched gauge of retail health that measures sales at stores open at least a year - declined 8.4 percent. The company predicted that number would drop at least 6 percent in the current quarter and the year.

Nearly 80 percent of the company's comparable stores are located in markets experiencing housing price declines, Niblock said. As a result, many consumers remain hesitant to begin big-ticket projects, he said.

In March, company officials said they plan to delay the opening of about 20 new stores this year in several hard-hit markets, including California and Florida. The company remains on track to open 120 stores this year, Lowe's President Larry Stone said Monday.

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