Lowe’s profit falls short of estimates
Chain’s reduced profitability blamed on low-margin items such as home appliances
Lowe’s Cos. Wednesday posted a second-quarter profit that trailed analysts’ estimates, showing that the home-improvement retailer isn’t benefitting as much from the long expansion in housing prices as Home Depot Inc.
Profit in the three months through July 31 was $1.20 (U.S.) per share, the Mooresville, N.C.-based company said Wednesday in a statement. Analysts estimated $1.24.
Lowe’s and Home Depot both have capitalized on years of housing-price gains, but Lowe’s is struggling to execute as well as its larger rival. Lowe’s profit has now trailed analysts’ projections in four of the past eight quarters, and Home Depot has missed only once in that time. In the second quarter, Lowe’s sold more less-profitable items and didn’t control expenses as well as analysts had expected.
“We continue to favour Home Depot over Lowe’s, as the slight premium in valuation that Home Depot carries is more than justified by its superior sales performance and ability to better leverage expenses,” Kate McShane, an analyst at Citigroup Inc., wrote in a note.
Lowe’s gross margin, or the percentage of sales left after cost of goods sold, narrowed to about 34.48 per cent in the second quarter from 34.55 per cent a year earlier. Analysts had projected the measure would expand to 34.61 per cent.
The reduced profitability may have been caused by sales of more lowmargin items such as appliances, David Schick, an analyst for Stifel Financial Corp., said in a research note. Weakening margins also are often caused by an increase in discounting.
Selling, general and administrative expenses at Lowe’s were about 20.95 per cent of sales in the quarter, down roughly 38 basis points from a year earlier. Citigroup’s McShane had estimated they would drop by 53 basis points.
Same-store sales, a key measure of growth because only established locations are counted, rose 4.3 per cent in the quarter. Although that tops the 3.9-per-cent gain analysts had projected, it’s the slowest growth in five quarters. Revenue by the same measure advanced 4.2 per cent at Home Depot.