Tags: Lowe’s Companies | LOW | retail | hardware | home improvement | stocks

Lowe’s Caught in Housing Downdraft

By Mike Seemuth   |   Thursday, 30 Jun 2011 11:30 AM

Lowe's Companies (LOW) sells everything from pliers to plywood to paint at home improvement stores throughout North America and it is anxious for the housing industry to recover from the deep recession. The Mooresville, N.C. company is the world's second-largest home improvement retailer behind top-ranked Home Depot (HD). Lowe's has more than 1,750 home improvement stores in the United States, Canada, and Mexico that collectively attract about 15 million customers a week.

The company's profitability improved in 2010 after annual net income declined, year over year, in both 2009 and 2008. The positive momentum may persist into 2011, especially if the housing industry gets healthier and economic growth becomes peppier.

Lowe's has faced plenty of top-line pressure. Sales totaled $48.81 billion in the fiscal year ended Jan. 28, 2011, just 4 percent more than in 2006. The current fiscal year started slowly, too.

Lowe's reported $461 million of net income in its first fiscal quarter, the three months ended April 29, down from $489 million in the comparable period last year.

First-quarter sales slid to $12.18 billion from $12.38 billion in 2010. Diluted earnings per share were unchanged at 34 cents.

In May, Lowe's predicted that its diluted earnings per share will range from $1.56 to $1.64 in the full fiscal year ending Feb. 3, 2012, which would be an improvement over $1.42 last fiscal year and $1.21 two years ago.

"We continue to expect the second half of the year to be stronger than the first half . . . However, stabilization of home prices and solid progress working through the inventory of distressed housing will be key milestones for recovery," Robert A. Niblock, the chairman and chief executive officer of Lowe's, said in a statement.

Street divided

In early June, Wall Street was divided over the prospects for Lowe's stock, though almost no one recommended selling it. About half of the analysts following the company had buy ratings on its stock and about half had neutral ratings.

In a June report, Citi Investment Research reiterated a neutral hold rating for Lowe's and a price target of $28. The stock price has ranged from $20 to $25 for most of the last two years. Beyond the retailer's "soft quarter" ended in April, "we believe the company continues to face significant headwinds," Citi reported, citing "a soft housing market recovery, high gas prices, and stronger competition from HD (Home Depot)."

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Lowe's Companies (LOW) sells everything from pliers to plywood to paint at home improvement stores throughout North America and it is anxious for the housing industry to recover from the deep recession. The Mooresville, N.C. company is the world's second-largest home...
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