Lowe's Profits Up 30.5 Percent

Retail Editor 4, Don Hogsett, May 23, 2005

Mooresville, N.C. —First quarter profits at Lowe's Companies Inc. jumped 30.5 percent, to $590 million from $452 million last year, but still came in slightly shy of Wall Street's expectations as wet, cold weather put a chill on sales during March.

Analysts and investors had been expecting a per-share profit of 76 cents, but with sales taking a weather-related hit, earnings fell modestly short, at 74 cents. Unfazed investors didn't seem to mind the slight disappointment, and bought heavily into the stock, pushing it up 4.4 percent, or $2.33 a share, to $55.19 in heavy trading after the news came out on May 16.

Sales at the home improvement retailer advanced 14.2 percent, to $9.9 billion from $8.7 billion, while same-store sales rose 3.8 percent.

Robert Niblock, chairman and CEO, said, “An unusually cold, wet March in many parts of the country” took a bite out of sales, putting a cap on profits during the opening quarter. “We achieved high single-digit comparable store sales in February and April, but they were offset by negative low single-digit comps in weather-affected March.”

Helping to drive profits higher, in addition to stronger sales, the retailer substantially improved its margin performance. Average gross margin widened 140 basis points, or 1.4 percentage points, to 34.5 percent from 33.1 percent. Operating costs held relatively steady, edging up just two-tenths of a percentage point, to 21.5 percent of sales from 21.3 percent during the same period a year ago.

With the weather taking its toll in March, stockpiles climbed faster than sales during the opener, climbing 19 percent, to $6.8 billion, running ahead of the 14.2 percent increase in overall sales.

Providing some cheer to analysts and investors, Lowe's provided an upbeat outlook for the second quarter and all of this year. Same-store sales during the current quarter are forecast to rise 4 to 6 percent, pushing profits up to $1 to $1.02 per share. For all of this year, same-store sales are forecast to rise 5 percent, leading to a per-share profit of $3.25 to $3.34.

Lowe's Companies Inc.

Qtr. 4/29 (x000) 2005 2004 % change
Sales $9,913,000 $8,681,000 14.2
Oper. Income (EBIT) 1,279,000 1,017,000 25.8
Net income 590,000 452,000 30.5
Per share (diluted) 0.74 0.56 32.1
Average gross margin 34.5% 33.1%
SG&A expenses 21.6% 21.4%

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