Home Improvement Shows Improvement

Giant Home Improvement retailer Lowe’s (LOW) posted a larger than expected first-quarter profit today, signaling an increased demand for home improvement projects over the quarter. Lowe’s says spring gardening sales and the demand for minor outdoor projects boosted its earnings. Regardless the reason, the data indicates people are putting more money into their homes after months of cutbacks on discretionary home improvement purchases. Analysts expected the Mooresville, N.C.-based retailer would earn just $0.25 per share in Q109, according to FactSet research; however, its net income for Q109 came in at $476m, or $0.32 cents per share. That’s down from $607m, or $0.41 per share, earned last year. “In recent weeks we have seen consumer confidence improve, housing turnover show signs of a bottom in certain markets, and home prices slow their decline,” said Robert Niblock, chief executive of Lowe’s, in a statement Monday. The company said its gross margin — a measure of sales profitability — widened to 35.46% from 34.69% in the quarter, which J.P. Morgan Analyst Christopher Horvers told Market Watch should ease investors’ fear of more aggressive pricing tactics in the home improvement sector. Analysts expect Lowe’s direct competitor, Home Depot, will also report a smaller than expected Q1 profit decline on Tuesday. According to a Wall Street Journal report, analysts are predicting earnings per share will have declined 32%. The company has recently shuffled its business tactics to accommodate the tightening economy, cutting back on store growth, reducing inventory and investing in improving customer service and marketing the do-it-yourself tactic, encouraging consumers to save money on labor costs. Of recent, Home Depot champions a new tag line: “More Saving. More Doing.” The home-improvement industry has been pounded by the economic downturn, which has led consumers to put off home-improvement projects and the purchase of big-ticket items — which most still seem to be putting on the back-burner. But Lowe’s offers hope that the housing market may be nearing bottom in its second-quarter profit forecast — $0.51 to $0.55 per share — which exceeds analysts’ expectations and raises its full-year projection. In contrast, in April, Standard & Poor’s  lowered its ratings outlook on Lowe’s to negative from stable, due to the ailing housing-market. Write to Kelly Curran.

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