* 1st-qtr EPS of 49 cents is 2 cents below Wall Street view
* Shares touch all-time high
* Colder-than-usual weather hurt demand for seasonal goods
* Hard to close 'performance gap' vs Home Depot -analyst
By Dhanya Skariachan
May 22 No. 2 home improvement chain Lowe's Cos
Inc reassured investors that sales trends improved
significantly in April and May after seeing a weak start to the
spring selling season.
The news pushed Lowe's shares to an all-time high and
overshadowed the weaker-than-expected first-quarter results the
chain reported on Wednesday, as colder-than-usual weather hurt
demand for lawn and garden and other seasonal goods.
"We do believe that we will make up a significant portion of
the sales that we lost in the first quarter," Chief Executive
Robert Niblock said in an interview, referring to more favorable
weather trends in the current quarter.
Like its larger rival Home Depot Inc, Lowe's said it
was seeing strong sales to contractors. For the first time since
2008, sales to contractors and professional customers grew at a
faster pace than those to regular homeowners and other shoppers,
Home Depot CEO Frank Blake said on Tuesday.
"All that just speaks to what you have been hearing about
the housing market starting to recover," Niblock told Reuters.
While Wall Street expects the housing market recovery to
help both retailers, some analysts predict that Home Depot will
continue to outperform Lowe's on the sales front for a while,
partly due to a structural advantage.
Home Depot derives 35 percent of its sales from contractors
and professional customers, while Lowe's derives only 25 percent
of sales from professional customers, RBC Capital Markets
analyst Scot Ciccarelli said.
Ciccarelli said it was "hard to close" that gap because Home
Depot had more stores than Lowe's in major metro areas and many
of the professional contractors and their businesses were based
in those areas.
FIGHTING HOME DEPOT
On a conference call, Lowe's said same-store sales rose
about 10 percent in April after falling 10 percent in March.
Lowe's also managed to maintain the momentum in same-store sales
in the first three weeks of May, the company said.
Lowe's sales fell 0.5 percent to $13.09 billion in the first
quarter ended on May 3, missing the analysts' average estimate
of $13.45 billion. Sales at stores open at least a year dipped
0.7 percent. It was the 16th straight quarter that Lowe's posted
weaker same-store sales than Home Depot.
"The spread between Home Depot and Lowe's (same-store sales)
expanded in the first quarter, something we had worried might
happen," said Janney Capital Markets analyst David Strasser.
Lowe's stocked more lawn and garden products than Home Depot
and as a result suffered more from the unfavorable weather,
Strasser said. At the same time, he said, Home Depot had a
greater presence in California, where housing has made a strong
While Lowe's has been working to improve product selection
and customer service, it has yet to turn around its business.
If Lowe's does not close the performance gap with Home Depot
by late 2013 or early 2014, investors may conclude that Lowe's
has failed to benefit as much as expected from its exposure to
the U.S. housing market, Ciccarelli said by phone.
"I would be very surprised if it caught Home Depot in this
cycle in terms of same-store sales, market share," said Chris
Bertelsen, chief investment officer of Sarasota-based wealth
manager Global Financial Private Capital that owns Lowe's
shares. He wants the company to close more unprofitable stores.
As part of its makeover, the company has started offering
everyday low prices and products targeted to specific geographic
markets. It made its stores more appealing with improved signs,
television displays that stream videos on how-to-do projects,
and lower racks to make items easier to reach.
Lowe's has also increased its assortment of products
available online and started mylowes.com, a website that allows
shoppers to save their room dimensions, create a shopping list
and set reminders to buy items such as air filters and batteries
for smoke alarms.
Lowe's, which was also slower than Home Depot to cut costs
in the years after the housing collapse, said first-quarter net
earnings rose to $540 million, or 49 cents a share, from $527
million, or 43 cents a share, a year earlier.
Analysts on average expected a profit of 51 cents a share,
according to Thomson Reuters I/B/E/S.
Lowe's stock was up 1.3 percent at $42.96 on Wednesday
afternoon, after touching an all-time high of $43.84 earlier in