Lowe’s Profit Climbs 28% as It Moves Into New Markets

Lowe’s Cos., the world’s second-largest home improvement retailer, on Monday reported a 28% rise in fourth-quarter profit, aided by its move into large U.S. markets such as Chicago and New York.

But the company’s shares dropped nearly 3% as analysts expressed concern about same-store sales.

For its fourth quarter ended Jan. 30, Lowe’s had earnings of $407 million, or 51 cents a share, up from $319 million, or 40 cents, a year earlier. On average, analysts were expecting profit of 49 cents a share, according to Reuters Research.

The 2003 results included earnings of 1 cent a share from the sale of stores operating under the Contractor Yard name.

Lowe’s said sales rose 20% to $7.25 billion as consumers bought flooring, outdoor power equipment and home organization products.

Sales at stores open at least a year, an important retail measure, rose 7.3%, helped by higher lumber prices.

Analysts said Lowe’s, which is posing a stiff challenge to industry leader Home Depot Inc. in big cities, had a solid quarter but many expressed concern that same-store sales were not higher.

The 7.3% rise “represents a deceleration from the outstanding 12.4% the company reported last quarter,” J.P. Morgan Securities analyst Danielle Fox said in a research note. She had forecast a same-store sales rise of 8%.

Fox noted that while Lowe’s two-year same-store sales rate slowed to 13% from 16.5%, its three-year comparable sales rate was steady at 20%.

Lowe’s said same-store sales beat last year’s 4% rise, but were hurt by cold weather late in the quarter.

James Luke, a portfolio manager at BB&T; Asset Management, which owns shares in Lowe’s and Home Depot, said Lowe’s will grow as it adds stores in denser markets where store productivity is higher. “That should be the real story on Lowe’s for the next three years,” he said.

Lowe’s, based in Mooresville, N.C., has more than 950 stores, while Atlanta-based Home Depot has more than 1,700.

Luke said Home Depot, which reports earnings today, may post same-store sales that are better than Lowe’s as store improvements pay off.

Last year, Home Depot posted a 6% drop in fourth-quarter same-store sales as earnings fell 3%.

Despite concerns that rising interest rates could crimp home improvement, Lowe’s President Robert Niblock said factors such as consumer optimism and lower unemployment would help.

“I really don’t see a slight tickup in interest rates having a significant impact on our business,” Niblock said.

Lowe’s forecast earnings of 52 cents to 54 cents a share for the first quarter and profit of $2.63 to $2.66 a share for the full year.

Lowe’s said sales would rise 18% to 19% in the first quarter, while same-store sales were expected to rise 6% to 7%.

Lowe’s shares eased $1.71 to $56.67 in New York Stock Exchange trading, while Home Depot eased 32 cents to $35.38.