Lowe's calms nerves with profit forecast raise after Home Depot sales warning

[November 20, 2019]  By Uday Sampath Kumar

(Reuters) - Lowe's Cos Inc <LOW.N> raised its annual profit forecast on Wednesday, helping ease concerns over the health of the U.S. consumer after larger rival Home Depot Inc <HD.N> cut its full-year sales estimates ahead of the all-important holiday season.

Shares of Mooresville, North Carolina-based Lowe's rose 5.8% to $119.94 in premarket trading and were set to hit a record high after open.

Fewer discounts lifted Lowe's profit margins in the third quarter, while an increased assortment of industrial products like drills and power saws attracted more high-spending builders and handymen.

Building contractors, plumbers and electricians are becoming increasingly more important to Lowe's and Home Depot as they look beyond their core do-it-yourself customers to new sources of revenue.

Lowe's retained its full-year revenue and comparable sales forecasts, in contrast to Home Depot, and Chief Executive Officer Marvin Ellison said a solid macroeconomic backdrop was boosting U.S. home improvement stores.

Home Depot on Tuesday also reported disappointing quarterly sales, saying the integration of its online and brick-and-mortar businesses was not yet generating as much revenue as expected.

"It's a relief that Lowe's wasn't as bad as some people may have expected given what happened with Home Depot yesterday," Ken Perkins, founder of research firm Retail Metrics, told Reuters.

Perkins added that investors were also upbeat about Ellison's initiatives gaining traction.

A Lowe's retail store is shown in Carlsbad, California, U.S., May 24, 2017. REUTERS/Mike Blake

In line with Ellison's plan to improve profitability, Lowe's will close 34 underperforming stores and reorganize its corporate structure in Canada.

The company has already shed its retail operations in Mexico and is cutting back on slow-moving inventory as part of Ellison's restructuring program.

Fewer discounts on its top-selling items helped boost Lowe's operating margin to 8.96% in the third quarter ended Nov. 1, up from 5.50% a year earlier.

But that also pushed more customers to look for deals at Home Depot during the quarter, according to a research by Jefferies analysts.

In October, for instance, Home Depot had about 7% of its products on sale, compared to just 1% at Lowe's, according to the brokerage.

That hit Lowe's same-store sales, which rose 2.2% but missed analysts' estimate of a 3.1% increase, according to IBES data from Refinitiv.

Excluding items, the company earned $1.41 per share, beating estimates of $1.35.

Lowe's raised its 2019 adjusted earnings forecast to $5.63 to $5.70 per share, from $5.45 to $5.65 earlier.

(Reporting by Uday Sampath in Bengaluru; Editing by Sriraj Kalluvila)

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