Lowe's Cos. said Monday it is expecting consumers will spend cautiously this holiday season on trees and gifts like power tools but said it sees signs the housing market is slowly improving.
The No. 2 home improvement retailer said Monday while reporting a lower third-quarter profit that some of the hardest-hit markets in the housing downturn improved compared with the quarter before. They include California, Florida and Arizona.
In all, 45 of 50 states showed improvement from the second quarter.
"As the economy and the housing market continue through the bottoming and recovery process, we know there will be ongoing macroeconomic hurdles to cross including declining home values and rising unemployment," Niblock said. "But we're encouraged by the signs of stabilization we're seeing in our business."
Home-improvement retailers have seen sales slip as consumers cut back on big-ticket remodeling projects amid the recession. Although the U.S. housing market is stabilizing, after a nearly three-year decline, home prices remain far below their peak.
CEO Robert Niblock said traffic was nearly flat compared with last year's third quarter, but higher than it was in this year's second quarter. Average ticket size fell 7 percent. Stronger sellers included interior paint, appliances and flooring.
Strong paint sales show "consumers willingness to complete simple projects to enhance their home," Niblock said.
Appliance sales were driven by energy-efficient offerings. Several states have started offering incentives for purchases of appliances with the Energy Star logo as part of the federal stimulus program. The federal government gave states $300 million to give out as rebates to buyers of energy-efficient appliances.
Flooring was also strong, driven by positive response to a $39 installation deal on Stainmaster carpet.
"When the right value is out there, we have seen consumers respond better than what we've seen in the past," Niblock said.
For the holidays, Lowe's is being more cautious than last year. The company said it ordered more conservatively on key categories including trees, decorations and power tools, which are popular gifts, to avoid marking items down later.
Profit in the quarter ended Oct. 30 fell 30 percent to was $344 million, or 23 cents per share, from $488 million, or 33 cents per share, in the same quarter last year. Results in the latest quarter included one-time costs related to closing some stores and no longer pursuing some future stores, as well as a tax benefit. Excluding those items, profit was 24 cents per share, matching analyst expectations according to a poll by Thomson Reuters.
Revenue edged down 3 percent to $11.38 billion, narrowly beating an average analyst estimate of $11.28 billion.
Sales in stores open at least one year fell 7.5 percent in the quarter. The metric is considered a key measurement of retailer health because it excludes the effect of new stores and store closings.
BMO Capital Markets analyst Wayne Hood said that although results are improving, credit availability, employment and home prices all will have to improve before the sector can fully recover, he said.
"We're in the camp that the turn in this business will be longer and more extended than previous cycles," Hood said.
For the fourth quarter, the company predicts sales will be even with the $9.98 billion reported in the year-ago quarter. Analysts expect revenue of $9.91 billion.
Lowe's expects earnings of 9 cents to 13 cents per share for the fourth quarter. Analysts expect earnings of 10 cents per share.
Lowe's projects full-year earnings of $1.16 to $1.20 per share, while analysts expect $1.20 per share.
Shares fell 12 cents to $21.73 during late-day trading.