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Lowe's says third-quarter profit falls

Profit fell 30 percent at Lowe's Cos. in the third quarter as customers continued to delay large purchases amid a weak economy.
/ Source: The Associated Press

Lowe's Cos., the No. 2 home-improvement retailer, said Monday third-quarter profit fell 30 percent as consumers worried about jobs and home values spent on smaller projects like painting but held back on larger jobs.

Still, the company said some of the hardest-hit home markets are stabilizing and said it expects this year's fourth quarter to be stronger than last year's.

CEO Robert Niblock said traffic was nearly flat compared with last year's third quarter, but higher than it was in this year's second quarter. Average ticket size fell 7 percent. Stronger sellers included interior paint, appliances and flooring.

"As the economy and the housing market continue through the bottoming and recovery process, we know there will be ongoing macroeconomic hurdles to cross including declining home values and rising unemployment," Niblock said. "But we're encouraged by the signs of stabilization we're seeing in our business."

Strong paint sales show "consumers willingness to complete simple projects to enhance their home," Niblock said.

Appliance sales were driven by energy-efficient offerings. Several states have started offering incentives for purchases of appliances with the Energy Star logo as part of the federal stimulus program. The federal government gave states $300 million to give out as rebates to buyers of energy-efficient appliances.

Flooring was also strong, driven by positive response to a $39 installation deal on Stainmaster carpet.

"When the right value is out there, we have seen consumers respond better than what we've seen in the past," Niblock said.

Profit in the quarter ended Oct. 30 was $344 million, or 23 cents per share, down from $488 million, or 33 cents per share, in the same quarter last year. Results in the latest quarter included one-time costs related to closing some stores and no longer pursuing some future stores, as well as a tax benefit. Excluding those items, profit was 24 cents per share, matching analyst expectations according to a poll by Thomson Reuters.

Revenue edged down 3 percent to $11.38 billion, narrowly beating an average analyst estimate of $11.28 billion.

Sales in stores open at least one year fell 7.5 percent in the quarter. The metric is considered a key measurement of retailer health because it excludes the effect of new stores and store closings.

Although the U.S. housing market is stabilizing, after a nearly three-year decline, home prices remain far below their peak. Niblock said he doesn't expect the housing market to begin to recover until at least the middle of next year.

Still, the company is beginning to see better performance in some of the hardest-hit housing markets, including California, Florida and parts of the desert Southwest, including Arizona. Forty-five of 50 states showed sequential improvement.

For the holidays, Lowe's said it ordered more conservatively on key categories including trees, decorations and power tools, which are popular gifts, to avoid marking items down later.

For the fourth quarter, the company predicts sales will be even with the $9.98 billion reported in the year-ago quarter. Analysts expect revenue of $9.91 billion.

Lowe's expects earnings of 9 cents to 13 cents per share for the fourth quarter. Analysts expect earnings of 10 cents per share.

For the year, the company expects sales to fall 2 percent to 3 percent, implying revenue of $46.75 billion to $47.24 billion. Analysts expect revenue of $46.84 billion.

Lowe's projects full-year earnings of $1.16 to $1.20 per share, while analysts expect $1.20 per share.