In the wake of Lowe’s announcement that it had cut its profit forecast for 2007, the company’s stock fell more than 6 percent on Sept. 25 along with a drop in other home-related stocks, including Home Depot’s.
Lowe’s had issued a warning Sept. 24 that it now expects fiscal full-year earnings at the low end of its earlier forecast of $1.97 to $2.01 a share. From 2008 to 2010, the company said it expects earnings growth of 12 percent to 15 percent per year and sales growth of 8 percent to 11 percent per year.
“External pressures weigh on our near-term performance, but looking past the current cycle, we see many opportunities for continued sales and earnings growth and increasing cash flow from operations,” said Robert Hull, executive vp and CFO, in a statement. “The current pressures will likely continue into 2008, so we expect our earnings performance to improve from mid-single digit growth in 2008 to high-teens in 2010.”
The company cited drought conditions in the western, southeastern and Mid-Atlantic regions for the lower earnings, saying the poor conditions hurt sales in the outdoor segment.
The news from Lowe’s comes amidst the lowest level of consumer confidence in almost two years and the biggest U.S. housing slump in at least 16 years. New home sales dropped 8.3 percent in August to the lowest in seven years, according to the Commerce Department. Sales of previously owned homes fell 4.3 percent, the National Association of Realtors said Sept. 25.
On Sept. 26, Lowe’s held its annual analyst and investor conference in Charlotte, N.C., making no predictions on when the housing crisis will end but telling those gathered that it will continue to shore up sales programs and forge ahead with expansion plans.
CEO Robert Niblock told those gathered that while housing pressures have had a regional impact on Lowe’s business, credit market woes are affecting home improvement customers nationwide. “Therefore, the sales environment is challenging as consumers hesitate on larger discretionary projects,” he said.
At the same time, Niblock said, the average ticket at a Lowe’s store was $68.31 for the second quarter, down only $1.50 from the same period in 2006, which means the stores are continuing to push through big project sales.
According to Gregory Bridgeford, Lowe’s executive vp-business development, the company plans to open 135 to 145 new stores next year. He also said Lowe’s will focus on expanding its market share of the DIFM category, which is growing more rapidly than the DIY market.
“Lowe’s is well positioned to capitalize on a large and fragmented industry to continue our growth,” he said.
“A major component of our organic growth plan is to layer new revenue streams on our existing store base by understanding the changing needs of home improvement customers, developing product and service solutions to meet those needs and crafting these differentiating customer proposals into profitable business models.”
Charles W. (Nick) Canter, executive vp-merchandising, said Lowe’s will continue to forge relationships with vendors and “prove to vendors that we should be their customer of choice.”
“We always want to be priced right, keep doing line reviews,” he said. “There is some value in exclusivity, but more value in partnering with vendors.”
Michael K. Brown, executive vp-store operations, also spoke about creating and maintaining a thriving sales culture in each store.
“Our continued focus on our operational strategies positions us to improve customer service in each of our stores and to grow market share,” he said. “With enhanced sales forecasting and labor scheduling at the store level, we’ll work to ensure we have knowledgeable sales people in the aisles taking care of customers. Lowe’s Building Blocks for Success provides a business plan that serves our stores well regardless of the macro economic environment.”
Lowe’s fiscal third-quarter ends on Nov. 2, with operating results to be publicly released on Monday, Nov. 19.