Lowe’s is optimistic despite housing ills

Home improvement retailer Lowe’s Cos. reported better-than-expected quarterly earnings Friday even as the weak U.S. housing market hurt results. Its shares rose as it said sales could trend upward this year.

“We believe our [same-store sales] performance has bottomed, and we expect to see gradual improvement” in 2007, Lowe’s Chairman and Chief Executive Robert Niblock said.

The No. 2 do-it-yourself retailer, behind Home Depot Inc., said it saw first-quarter and full-year profit about in line with Wall Street estimates.

Lowe’s “was willing to put a floor on the weakness and talk about improving dynamics at the end of the year,” said Sarah Henry, an investment analyst with Sovereign Asset Management. By contrast, she said, Home Depot delivered worse-than-expected results this week.

Lowe’s shares rose $1.30 to $34.93.

Lowe’s, based in Mooresville, N.C., said its outlook was based less on an expected upturn in housing than on easier comparisons. Same-store sales rose for the first half of 2006 but fell in the last half.

“We’ve given guidance for negative [comparable-store sales] and actually a decline in earnings for the first quarter,” Niblock said. “The comparisons get easier through 2007.”

Earnings for Lowe’s were $613 million, or 40 cents a share, for its fiscal fourth quarter ended Feb. 2, down 11.5% from $693 million, or 43 cents, a year earlier. The year-earlier quarter included an extra week.

Analysts on average had expected 37 cents a share, according to Reuters Estimates.

Total sales in the quarter fell about 4% to $10.4 billion, higher than analysts’ estimates, while sales at stores open at least a year declined 5.3%. After adjusting for the extra week in the previous year, Lowe’s said total sales rose about 5% for the fourth quarter.

Weak home sales and construction weighed on Lowe’s and Home Depot for the last year. Housing starts fell 13% last year, their biggest tumble in 15 years.

This week, Atlanta-based Home Depot posted a 28% drop in fourth-quarter profit and its CEO said he did not expect a dramatic turnaround in the housing market this year.

Lowe’s, which has 1,385 U.S. stores and plans to enter Canada this year, cited the potential for more than 2,000 stores in North America as it expands to big U.S. cities. Lowe’s store count in Mexico, a market it plans to enter in 2009, could reach 50.

The chain forecast per-share profit of 49 cents to 51 cents for its fiscal first quarter and $2.02 to $2.09 for the full year. Analysts expect profit of 51 cents a share for the first period and $2.03 a share for the year, according to Reuters Estimates.