Lowe's plans smaller stores, backs 2008 outlook

[September 25, 2008]  CHICAGO (AP) -- Home improvement chain Lowe's Cos. Inc. told investors Wednesday that it is scaling down the size of most new stores and eyeing even smaller locations in some rural areas as it tries to operate more efficient sites.

Executives at the company's annual analyst and investor conference said that new stores in medium and large markets will be about 103,000 square feet -- roughly 19,000 square feet smaller than many of its locations today.

The new format will help the nation's No. 2 home improvement chain -- which has been hit hard by the struggling U.S. economy and lackluster housing industry -- cut capital outlay costs by almost $2 million per store.

"As we go forward, we can better match the right store with the right market," said Larry Stone, the company's president and chief operating officer.

Meanwhile, Mooresville, N.C.-based Lowe's is also testing a 66,000-square-foot store in rural North Carolina, featuring a trimmed-down selection of items and a drive-thru lumber yard. It's also eyeing an 88,000-square-foot setup.

Citi Investment Research analyst Deborah Weinswig said new compact stores will likely produce higher returns for Lowe's as it tries to control expenses to boost its profits.

The company, which originally planned to open 140 stores this year, said Wednesday it has reduced that forecast to 120. With more than 300 locations in the company's pipeline, Lowe's said it's discontinued plans for 37 previously approved stores this year, mainly because of problems with site configuration and higher-than-expected costs.

Next year, Lowe's will slash the number of stores it opens even further, cutting the ribbon on 75 to 85 new sites -- including seven locations slated for Mexico and Canada.

Also Wednesday, Lowe's reiterated its fiscal 2008 outlook, but predicted a decline in same-store sales as weakness in the housing market continues.

Lowe's expects to post earnings per share between $1.48 and $1.56 for the fiscal year ending Jan. 30 and sales growth of 1 percent, implying revenue of $48.77 billion. Analysts polled by Thomson Reuters currently expect full-year profit of $1.53 per share on sales of $48.63 billion.

However, Lowe's expects same-store sales to decline 6 percent to 7 percent in the fiscal year. Same-store sales, or sales at stores open at least a year, is an important industry metric because it measures sales at existing stores rather than newly opened ones.

"As we look beyond the current fiscal year, uncertainty regarding the macroeconomic environment, including disruption in the housing and financial markets as well as the pressures on consumer spending growth, suggest it is prudent to remain cautious in our 2009 outlook," Chief Financial Officer Robert F. Hull Jr. said in a statement.

But Lowe's also said it plans to more than double 2008 earnings per share over the next five years and generate significant free cash flow. For the fiscal year ending Jan. 29, 2010, Lowe's forecasts earnings per share between $1.40 and $1.65, and sales growth of 2.5 percent to 6.5 percent. Same-store sales are expected to range from a 3 percent decline to a 1 percent gain, the retailer said.

On average, analysts expect earnings of $1.57 per share and sales of $50.53 billion.

Lowe's shares rose 21 cents to close at $23.67 on Wednesday.

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On the Net:

http://www.lowes.com/

[Associated Press; By ASHLEY M. HEHER]

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