Lowe’s Posts Profit Gain, but Stock Falls

Home improvement retailer Lowe’s Cos. on Monday reported a 15% rise in fiscal third-quarter profit, aided by its expansion to New York and other big markets, but its stock fell on a disappointing outlook and concern about profit margins.

Lowe’s gross margins, which were down when the effects of an accounting change were excluded, surprised many, and the company’s shares pulled back from the record high reached Friday.

Net income in the quarter ended Oct. 29 rose to $522 million, or 66 cents a share, from $452 million, or 56 cents, a year earlier. Analysts’ average forecast was 65 cents a share, according to a Reuters poll.

Lowe’s said recent hurricanes in the Southeast spurred sales but also pressured gross margins because of higher freight costs and damage to goods. Margins were also hurt by spending to test a new way of distributing products, it said.

Eric Bosshard, an analyst at FTN Midwest Research, said industry leader Home Depot Inc., which is set to report quarterly earnings today, had delivered solid margin gains from its store improvements, which included remodelings and technology upgrades.

Lowe’s, based in Mooresville, N.C., forecast fourth-quarter earnings of 58 cents to 60 cents a share. Analysts’ average forecast is 60 cents.

“It is likely that many investors were expecting the company to set fourth-quarter earnings-per-share guidance ahead of consensus views,” Piper Jaffray analyst Michael Cox said in a research note.

Robert Niblock, Lowe’s president, said the company was generally “somewhat conservative” in judging the weather-sensitive fourth quarter, which includes winter months.

“It’s our job to put guidance out there that we feel comfortable we can achieve,” Niblock said.

Third-quarter sales were up 16% to $9.1 billion as consumers bought more outdoor power equipment, cabinets and counter tops. Same-store sales, or sales at stores open at least a year, rose 5.2%.

The company forecast that fourth-quarter same-store sales would rise by 4% to 5%.

Although Lowe’s has delivered solid earnings as it expands to more cities, it faces stiff competition in several product categories, particularly appliances.

Lowe’s shares closed down $1 at $59.25 on the New York Stock Exchange after falling as low as $57.71 earlier Monday.