Lowe’s Net Income Up 42%; Toys R Us Loss Beats Forecasts

Second-quarter earnings for Lowe’s Cos. surged 42% as the nation’s second-largest home-improvement retailer expanded into big cities and controlled expenses.

At the same time, Toys R Us Inc. reported a narrower loss that beat forecasts, as the No. 2 toy retailer controlled inventory, cut costs, remodeled stores and boosted sales of traditional toys.

Lowe’s said net income increased to $467 million, or 59 cents a share, from $329.1 million, or 42 cents, a year earlier, spurred by 22 new stores that helped boost sales by more than a fifth. Sales climbed 22% to $7.49 billion in the quarter ended Aug. 2. Analysts on average had forecast earnings of 54 cents at Lowe’s, according to Thomson First Call.

The better-than-expected results sent shares of both retailers soaring and helped lift other U.S. stocks.

Lowe’s key, according to analysts, is that it is opening more-profitable stores in larger cities, such as Boston, to compete directly with bigger rival Home Depot Inc.

Toys R Us, which said its loss narrowed to $17 million as it saved money by combining departments and administrative functions, is revamping its stores to make shopping easier and to woo customers from rival Wal-Mart Stores Inc.

“We are not experiencing the collapse in consumer spending that some have predicted,” Lowe’s Chief Executive Robert Tillman said in a conference call. “Consumers view home improvement as synonymous with home investment.”

Sales at stores open at least a year increased 6.8%. Same-store sales at Home Depot, which is scheduled to release quarterly results today, may rise to the low end of its forecast for gains of 2% to 4%, analysts said.

Lowe’s also boosted its annual profit forecast to as much as $1.75 a share. Analysts on average had forecast $1.70.

Toys R Us reported a net loss of 8 cents a share, compared with a loss of $29 million, or 15 cents, a year earlier. Sales rose 2.4% to $2.07 billion in the period ended Aug. 3.

On average, analysts were expecting a loss of 11 cents a share, according to Thomson First Call.

The retailer said it trimmed advertising spending on concern that sales may slow as the economy falters. The company also canceled some seasonal orders to avoid being stuck with merchandise.

Sales of traditional, or core, toys, including learning and preschool products, at U.S. stores open at least a year climbed 5%. They do not include video games and seasonal outdoor products. Exclusive products, which carry higher gross margins, are expected to rise to 20% of revenue this year from about 5% in 1999, Chief Executive John Eyler said.

“Overall, it’s a pretty decent performance given the difficult economic conditions,” said Todd Kuhrt, an analyst with Midwest Research. “They shifted some of their advertising out of the second quarter into the second half, which should position them to show better top-line [sales] growth in the second half.”

The retailer has 1,573 stores worldwide, including 688 Toys R Us stores in the U.S.

Shares of Wilkesboro, N.C.-based Lowe’s gained $4.21, or 11%, to $41 on the New York Stock Exchange.

Shares of Paramus, N.J.-based Toys R Us rose $1.08, or 8%, to $13.90, also on the NYSE.