Lowe’s share price up as Q2 sales top estimates

Lowes Companies Inc, the second-biggest US home improvement chain, reported on Wednesday better-than-expected same-store sales in the second quarter as it benefited from improving consumer sentiment and a continuously recovering US housing market.

The company, which operates 1 846 home improvement and hardware stores in the United States, Canada and Mexico, said that same-store sales, a key measure of growth gauging performance at established locations, rose 4.3% in the three months ended July 31st, surpassing analysts median projection of 3.9%. The gain was driven by a 9.3% jump in purchases of above $500 as clients took on larger projects. Bigger rival Home Depot reported earlier in the week that same-store sales grew 4.2% in the second quarter, which also topped projections, boosted by increased home remodeling activity.

Lowes net sales jumped 4.5% to $17.3 billion from $16.6 billion in the second quarter of 2014, while for the first six months of the year, they rose 4.9% to $31.5 billion from the same period a year ago. Second-quarter net income jumped by 8.4% to $1.13 billion, or $1.20 per share, which however trailed analysts forecasts for $1.24 per share, weighed by a higher tax rate and a jump in selling and general expenses. On a half-year basis, net earnings were up 8.2% at $1.80 billion, or $1.90 per share.

“We posted solid results for the quarter and were able to capitalize on big-ticket market share opportunities with strong growth in categories like appliances and outdoor power equipment,” said Robert Niblock, Lowes chairman, president and CEO. “Our year-to-date earnings per share performance was in line with our expectations. This, together with the execution of our strategic priorities, gives us confidence in our Business Outlook for 2015.”

Lowes gross margin narrowed to 34.47% in the second quarter from 34.55% a year earlier, defying analysts projections for a jump to 34.61%. This was due to the companys successful strategy to drive appliances sales up by offering more promotions. Kitchen and appliances items such as dishwashers, refrigerators and dryers generate the biggest portion of the companys sales, while its outdoor power equipment category includes items such as chainsaws and generators.

With the US economy following a path of robust recovery, Lowes and Home Depot have benefited from a continuously improving consumer sentiment and house-price gains. Data earlier this week showed that a gauge of homebuilder sentiment hit the strongest in almost a decade in August, while a report on Tuesday pinned US new home construction in July at the highest in almost eight years.

However, unlike Home Depot, which raised its full-year guidance, Lowes reaffirmed its forecast for a profit of approximately $3.29 per share for the fiscal year through January 29th, 2016. The company forecast total sales growth of between 4.5% and 5%, and a 4%-4.5% increase in same-store sales, and expects to add 15 to 20 home improvement and hardware stores.

Lowes Companies Inc rose 1.85% on Wednesday in New York to $74.37 per share, marking a year-on-year jump of 44.35% and a year-to-date increase of 8.10%. The home improvement chain is valued at $69.36 billion. According to CNN Money, the 23 analysts offering 12-month price forecasts for Lowes have a median target of $80.00, with a high estimate of $88.00 and a low estimate of $68.00. The median estimate represents a +7.57% increase from the last price of $74.37.