Lowe’s Cos., the nation’s second-largest home improvement chain, said Monday its first-quarter profit rose 44 percent as the company continued to expand offerings.
The results beat Wall Street estimates but its shares tumbled more than 4 percent in what chairman and CEO Robert Niblock said reflected confusion over a calendar shift that boosted the latest revenue totals.
In a conference call with analysts, Niblock said the company is gaining market share in appliance sales and continues to expand sales of installed products, special orders and commercial sales.
The company also predicts that the real-estate bubble that prompted so much worry in 2005 is going to resolve in a soft landing. Home sales and turnover are essential to retail sales at Lowe’s and competitors like Home Depot Inc.
“We’re optimistic about the underlying fundamentals of the home improvement industry,” Niblock told analysts.
First-quarter profit jumped to $841 million, or $1.06 per share, in the three months ended May 5 from $586 million, or 73 cents per share, during the same period last year. Revenue grew 20 percent to $11.92 billion from $9.91 billion last year.
Analysts, on average, predicted a profit of 94 cents a share on revenue of $11.84 billion, according to a poll by Thomson Financial.
The first quarter of Lowe’s fiscal 2006 ended one week later — May 5 — than it did in 2005 — April 29, giving the company an extra week of warm-weather sales. That shift could result in a negative impact in the second quarter and it also means that the fourth quarter of the current fiscal year will contain 13 weeks, instead of the 14 weeks in the fourth quarter of fiscal 2005, the company said.
Sales in stores open at least one year, a widely used industry gauge of performance known as same-store sales, grew 5.7 percent during the quarter. The company said same-store sales were not affected by the sales week shift.
Lowe’s plans to open 24 stores in the second quarter and a total of 155 this fiscal year, which includes four relocations of existing stores.
Niblock has led an effort to expand Lowe’s beyond its traditional business model to that of a one-stop home destination that can cater not only to the do-it-yourself market, but also the growing market that the company calls “Do It For Me,” or DIFM, which includes installation, repair and even some activities traditionally handled by contractors.
“Customers really prefer one-stop shopping,” Niblock said. “We provide that total service for them.”
He said installed sales rose 23 percent for the first quarter; Larry Stone, the company’s senior executive vice president for marketing and merchandising added that Lowe’s is doing tests in some markets with an eye toward expanding the items it will install.
“The DIFM model found there’s a lot more things customers want us to install,” Stone said.
Niblock said the company was able to cover for last year’s increases in fuel costs by improving its supply chain efficiency and expects to be able to compensate for higher gas prices the same way this year. He also said the company believes the underlying strength of the U.S. economy, as seen in wage growth and a decline in unemployment, will more than make up for any pinch consumers might feel from gas prices this year.
“At the end of the day, it’s how much disposable income the consumer has,” Niblock said. “We would always prefer the consumer to have more disposable income ... but as long as long as there’s a healthy economy out there being driven by growth in wages or low unemployment rates, I think that bodes well for our industry and our sector.”
Lowe’s, second to Home Depot Inc. among U.S. home improvement chains, said it expects revenue to grow 12 percent in the second quarter with same-store sales increasing 3 percent to 5 percent. It expects earnings of $1.21 to $1.24 per share.
Analysts are predicting a profit of $1.23 per share on revenue of $13.59 billion.
For the year, the company forecast earnings of $4.14 to $4.22 per share on revenue growth of 13 percent, along with same-store sales growth of 4 percent to 5 percent. Analysts expect earnings of $4.06 per share on $49.15 billion in revenue.