Lowe's misses estimates after Home Depot wins spring battle

Lowe's posted first-quarter profit that trailed analysts' estimates as it failed to fend off a promotional blitz from rival Home Depot during the retailers' most important season.

Profit in the three months through May 1 was 70 cents a share, Mooresville, North Carolina-based Lowe's said Wednesday in a statement. Analysts estimated 74 cents.

Lowe's and Home Depot both barraged consumers with deals last quarter, which generates more sales for them than the winter holiday season. Home Depot expanded its "Spring Black Friday" event with discounts on the Web to accompany in-store deals. Lowe's held a similar event and dedicated more prominent floor space to seasonal goods like patio furniture. In the end, Home Depot came out on top, stunning analysts who had estimated that Lowe's same-store sales growth would top Home Depot's for the first time since 2006.

"We are surprised," David Strasser, an analyst at Janney Montgomery Scott, said in a research note. "The stores looked so good and were ready for spring, inventory was plush, and merchandising seemed spot on."

Same-store sales at Lowe's rose 5.2 percent in the quarter, trailing Home Depot's 6.1 percent increase. Analysts had projected Lowe's would post a 6.1 percent gain and that Home Depot would boost sales 5.5 percent.

The stock had gained 4.4 percent this year through Tuesday, compared with a 7 percent increase for Home Depot.

Strasser said Lowe's may be hampered in the U.S. by having stores in worse locations than Home Depot. Executives said on a conference call that its stores in the Northeast struggled with colder weather than a year earlier.

"Otherwise we struggle to determine why they would underperform Home Depot, especially as they operate better and better on a regular basis," Strasser said.

Lowe's domestic same-store sales fared especially badly against its larger rival. Home Depot's U.S. same-store sales climbed 7.1 percent, beating the 5.3 percent gain at Lowe's.

Even though Lowe's missed estimates, the company is boosting sales faster than most of the retail industry. Customers are shifting spending to their homes as they rise in value and away from apparel and other consumer goods. Wal-Mart Stores Inc. said Tuesday that total U.S. same-store sales rose 1 percent, missing estimates.

Lowe's net income rose 7.9 percent to $673 million, or 70 cents a share, from $624 million, or 61 cents, a year earlier. Total revenue increased 5.4 percent to $14.1 billion, trailing analysts' $14.3 billion estimate.

The company repeated its forecast that profit this year would be about $3.29 per share. Analysts estimated $3.31. Chief Financial Officer Bob Hull said on a conference call that sales so far in May have exceeded its expectations.

Home Depot's first-quarter total sales and profit both beat analysts' expectations, and the retailer boosted its annual forecast on both fronts.

Data released by the Commerce Department Tuesday underscored the homebuilding industry's health, which is helping both retailers. U.S. housing starts surged 20 percent in April to the highest level in more than seven years.

While those figures were encouraging, Lowe's and Home Depot care more about residential real estate prices. The National Association of Realtors expects about 5.83 million new and existing homes to be sold this year, but there are about 74 million American homeowners who may spend more on their dwellings if they think they're rising in value.

The data on the pricing front has been strong as well. The median price of a single-family home rose 7.4 percent in the first three months of the year, according to the Realtors group. Prices climbed in 85 percent of U.S. metropolitan areas, the group said.