Lowe's cuts profit outlook; shares fall

(Reuters) - Lowe's Cos Inc , the world's No. 2 home improvement chain, cut its fiscal-year earnings outlook and said demand slowed toward the end of the traditionally strong first quarter, sending its shares down nearly 10 percent.

Lowe's forecast came just days after larger rival Home Depot Inc missed Wall Street's quarterly sales estimates as demand weakened in April following a jump in home improvement projects earlier in the year because of a warm winter.

"While we capitalized on better-than-anticipated weather during most of the quarter, demand for seasonal products slowed toward the end," Lowe's Chief Executive Robert Niblock said on Monday.

Sales at Lowe's stores open at least a year rose 2.6 percent, including a 2.7 percent increase for the U.S. business, making it the 12th straight quarter when it trailed Home Depot Inc in same-store sales.

The 2.6 percent rise in same-store sales also fell short of many analysts' expectations. Barclays analyst Alan Rifkin was looking for a 4 percent increase.

The results from both chains also reflected the state of the housing market, analysts said.

"Are things stabilizing? Yes. Are things better collectively today than they were four, five, six years ago? Clearly. Things are not terrific in this space," Rifkin said.

Lowe's shares slid nearly 10 percent at $25.71, while Home Depot shares dipped 1.3 percent at $46.45 on Monday morning.

Spring is traditionally the biggest selling season of the year for home improvement chains. But this year, homeowners stepped out earlier than usual to take advantage of the unseasonably warm winter weather across the United States.

Lowe's, which maintained a "cautious view of the housing and macro demand environment," now sees earnings of $1.73 to $1.83 a share for the year ending February 1. It earlier forecast $1.75 to $1.85.

Goldman Sachs analyst Matthew Fassler called Lowe's outlook "disappointing," especially since the company exceeded profit estimates in the first quarter.

"My biggest concern about the sector is the underlying demand dynamics," Fassler said. He has a "buy" rating on Lowe's and a "neutral" rating on Home Depot.

Still, Rifkin said he preferred Home Depot over Lowe's, citing the larger rival's efforts to control costs.

STORE-LEVEL CHANGES

Lowe's sales rose 7.9 percent to $13.15 billion in the first quarter ended May 4, while analysts, on average, expected $12.99 billion, according to Thomson Reuters I/B/E/S.

Net earnings rose to $527 million, or 43 cents a share, from $461 million, or 34 cents a share, a year earlier. Excluding a charge for a previously announced cut in U.S. headquarters staff, the retailer earned 44 cents per share, compared with Wall Street's estimate of 42 cents.

Lowe's, which runs 1,747 stores in the U.S., Canada and Mexico, continues to expect total sales to rise 1 percent to 2 percent for the fiscal year, with an increase of 1 percent to 3 percent in sales at stores open at least a year.

Fassler said he was excited about the changes that Lowe's is making in its stores. Late last year, it decided to move away from promotions to everyday low prices. It also started offering products targeted to specific areas and improved its website, signage and technology.

(Reporting By Dhanya Skariachan; editing by Dan Lalor, Lisa Von Ahn and Jeffrey Benkoe)

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