Lowe’s Companies Inc. (LOW): Earnings Up, Guidance Down

Home improvement retailer Lowe’s Companies, Inc. (NYSE: LOW) beat consensus estimates for $0.31 per share today with an announcement of $0.34 diluted earnings per share for the first quarter. The company earned $0.32 per share in the year-ago quarter.

Net earnings increased 2.7 percent from the year ago period to $489 million on sales of $12.4 billion, an increase of 4.7 percent. Same store sales for the first quarter increased 2.4 percent.

“Consumers are showing signs of reengagement in home improvement, including discretionary projects and purchases of bigger ticket products, which had taken a back seat during the worst of the economic downturn,” commented Robert A. Niblock, Lowe’s chairman and CEO. “This, combined with the government stimulus programs and favorable weather in March and April, drove solid quarterly sales and earnings that exceeded our guidance.”

Niblock also commented that he viewed 2010 as a “year of transition for our industry.” The retailer forecast $1.37 to $1.47 in earnings for the fiscal year; consensus estimates hovered around $1.45 for the year.

Lowe’s opened 11 new stores during the quarter and plans to open another 4 stores next quarter. The company plans to open 40 to 45 new stores in 2010.
LOW lost about 2.6 percent before the bell and traded around $25.07.

Comments: No real surprises in this report from the world’s second largest home improvement retailer. The company is in a better position cash-wise than last year but is also carrying higher inventories for Spring and stretching its payables a bit. Still the improvement in earnings is decent and the company did repurchase about $420 million in shares.

But with its fortunes tied to the housing market and its current plans to expand their retail space by about 2 percent this year, the timing and the charts do not look especially good to buy LOW, especially if projected earnings are tied to new store sales. Better to wait till Lowe’s grows its market share and then see if the expected profitability grows with it. Or sell and look for better returns elsewhere.

Disclosure: No positions