Lowes 2Q Results

Hot weather was a help and a hindrance to Lowes sales in early summer. The big home-improvement retailer reported that heat probably boosted sales for outdoor grills and air conditioners, helping to increase 2Q net income by 10 percent. However, the heat kept away other customers as well as the continued anemic economic recovery.

The observations by Lowes, the second largest home improvement chain in the nation, echo the attitude of a great many companies who are not seeing any signs that create any expectation of dramatic increases in consumer spending. The company has adjusted its annual revenue projections because of the troubling lack of progress in the nation's economic recovery.

By Steve Patterson

CEO Robert Niblock commented in an interview on Monday that federal rebate programs such as cash-for-appliances are effective and that American consumers do respond to their sales, but he described the projections for 2010’s annual revenues as "bouncing along the bottom." The news was not totally negative, as revenue from stores with at least a year of sales to report rose 1.6 percent. These figures are more significant indicators of true retail conditions because data from stores that either opened or closed during the year would not be representative of the entire year's retail activities.

The economic trauma of the past couple years has made Americans very tentative about spending any money on items that are not necessities, such as improvements that enhance a home's appearance; for example, new kitchen cabinets, appliances or flooring. Carpet sales continue to be a bright spot but definitely off from sales seen in previous years, as people only spend what they have to, rather than just to beautify.

Overall, a sign of the continued weakness of the economy is the decline in home sales. Home sales surged earlier this year, but apparently that was due to buyers taking advantage of tax credits. The credits were no longer available after the end of April. With fewer home sales come fewer sellers and buyers doing upgrades or furnishing homes with appliances and repainting walls.

Nevertheless, the reported net income for the Lowe's chain increased to $832 million for the quarter ending July 30, compared to $759 million. That works out to 58 cents a share compared to 51 cents previously. The overall revenue growth rate was 4 percent. Sales were reported at $14.36 billion. The figures, although positive, were less than previously projected by industry analysts who had projected that gross revenues of $14.52 billion would yield a profit-per-share of 59 cents, as reported by Thomas Reuters.

Lowe's is, however, revising previous projections of profits upwards, increasing the estimated profit per share this year from $1.38 to $1.45. This despite a reduction in the amount the company expected revenues to increase. Previously Lowe's projected revenues for the year would increase 5 to 7 percent or from $49.58 to $50.53 billion. Now the company believes revenues will only increase 4 percent which would be approximately $49.11 billion.  Analysts’ own projections are about the same--revenues of $49.57 billion and profits per share of $1.42. The revenues from stores, including only those open at least one full year, are expected to rise approximately 2 percent. Previously the company hoped stores would generate increases in the 2 to 4 percent range. For just the third quarter projections, Lowe's estimates per-share profits will range from 28 to 32 cents and that total revenues will increase from 3 to 5 percent. This works out to a gross revenue projection ranging from $11.72 to $11.97 billion. Industry analysts’ figures are very close: 31 cents profit per share and revenues of around $11.94 billion.

The biggest competitor for Lowe's, Home Dept, will provide their 2Q quarterly earnings results Tuesday.