Lowe's sales beat estimates as housing market strengthens

[May 18, 2016]  (Reuters) - Home improvement chain Lowe's Cos Inc followed larger rival Home Depot Inc in reporting better-than-expected quarterly sales as strength in the U.S. housing market and favorable weather led to strong demand for building and home renovation products.

Shares of the company, which also raised its profit forecast for the year ending January 2017, rose as much as 3 percent to $78.85 in premarket trading on Wednesday. They later pared some gains to trade up 1 percent.

Results from the home improvement chains stand in stark contrast to grim quarterly reports from retailers such as Macy's Inc <M.N> as consumer spending shifts away from apparel and accessories to big-ticket items including cars and homes.

"The home improvement industry once again shows its resilient nature in an increasingly more difficult environment for retailers," J.P. Morgan analyst Christopher Horvers wrote in a note.

The pullback in gas prices has seemingly intensified the willingness to invest in homes, he said.

U.S. housing starts rose a stronger-than-expected 6.6 percent in April, data showed on Tuesday.

Housing starts hit their highest level in five months in February, before falling more than expected in March.

Lowe's raised its full-year profit forecast to about $4.11 per share from about $4.

The forecast excludes the impact of its C$3.2 billion ($2.28 billion) acquisition of Canada's Rona Inc, which the company expects to close on May 20.

Sales at stores open more than 13 months rose 7.3 percent, well above the 4.3 percent increase expected by analysts polled by research firm Consensus Metrix.

Lowe's net income rose to $884 million, or 98 cents per share, in the first quarter ended April 29, from $673 million, or 70 cents per share, a year earlier.

Excluding a gain on a foreign currency hedge entered into in advance of the pending acquisition of Rona, the company earned 87 cents per share, beating the average analyst estimate of 85 cents, according to Thomson Reuters I/B/E/S.

Net sales rose 7.8 percent to $15.23 billion, beating the average analyst estimate of $14.87 billion.

Up to Tuesday's close, the stock had risen 4.2 percent in the past year, underperforming Home Depot's 15.5 percent gain during the same period.

(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Don Sebastian and Sriraj Kalluvila)

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