Lowe’s profits jump amid housing rebound

elyportillo@charlotteobserver.comNovember 20, 2013 

Higher home prices and a rebound in some of the hardest-hit housing markets are translating to a bigger bottom line for Mooresville-based Lowe’s Inc., as the retailer reported higher sales and profits during its third quarter.

The home improvement retailer said it expects the housing market to power stronger results into next year. Profits rose 26 percent from the same quarter last year, to $499 million. Sales at Lowe’s increased 7.3 percent, to $13 billion.

“What we're seeing as a driver of our sector of retail is home prices starting to appreciate,” said Lowe’s chief executive Robert Niblock. During the recession and its aftermath, homeowners’ “primary concern was how to adjust to what felt like a free-fall.”

“They probably put off buying a new appliance just like buying a new car,” said Niblock.

Now, though, there are building signs that consumers are easing back into spending on discretionary and big-ticket items, Niblock said. The average amount of a purchase at Lowe’s crept up 1.5 percent, to $64.07. And while the total number of transactions at Lowe’s stores rose 3.6 percent in the quarter, sales over $500 jumped 8.6 percent.

Sales growth has been strongest, Niblock said, in those housing markets most affected by the real estate meltdown, such as Florida, California and Arizona.

Sales at Lowe’s stores open for a year or more, considered a key measure of a retailer’s health, rose 6.2 percent from the same quarter last year. Lowe’s executives said they expect sales to rise 6 percent for the full year, up from their earlier estimates of 5 percent.

Lowe’s operates 1,831 home improvement stores in North America.

Atlanta-based Home Depot, Lowe’s biggest competitor, also posted strong results in the third quarter. On Tuesday, Home Depot said its profits rose 43 percent, to $1.35 billion. Sales were up 7 percent, to $19.5 billion. The company also raised its forecast for the rest of the year.

To differentiate itself from Home Depot, Niblock said, Lowe’s is focusing on improving the customer experience. The company has a new “product locator app” that lets people search for the in-store locations of various items on their smartphones. And Lowe’s said its decision earlier this year to add 150 more employee hours in many of its stores is helping to close more sales and better assist customers.

Analyst Wayne Hood of BMO Capital Markets said that while Lowe’s posted good results, the company is still slightly lagging Home Depot. “Given the stock’s premium multiple ... we expect investors to be disappointed and, as such, we look for the stock to trade lower today,” Hood said in an early note to investors Wednesday.

The company’s stock closed down $3.11, about 6 percent, at $47.33 a share on Wednesday.

Portillo: 704-358-5041; Twitter: @ESPortillo

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