(LOW) Lowe’s Companies Earnings Preview

Lowe’s Companies Inc. (LOW), the world’s second largest home improvement retailer, is scheduled to report its second-quarter 2011 financial results on Monday, August 15, 2011. The current Zacks Consensus Estimate for the quarter is 67 cents a share. For the quarter under review, revenue is $14,743 million, according to the Zacks Consensus Estimate.

First-Quarter 2011, a Synopsis

On May 16, 2011, Lowe’s posted lower-than-expected first-quarter 2011 results, reflecting sluggish economic recovery and difficult comparison on account of government stimulus programs that benefited the prior-year quarter.

The quarterly earnings of 34 cents a share missed the Zacks Consensus Estimate of 36 cents and remained flat compared with the prior-year quarter. The quarterly earnings was at the lower end of the company’s guidance range of 34 cents to 38 cents a share.

Net sales for the quarter inched down 1.6% to $12,185 million from the year-ago quarter, and also fell short of the Zacks Consensus Estimate of $12,515 million.

Second-Quarter & Fiscal 2011 Guidance

Management now expects sales to increase approximately 4% in the second quarter and fiscal 2011, respectively.

Second-Quarter 2011 Consensus

Analysts considered by Zacks, expect Lowe’s to post second-quarter 2011 earnings of 67 cents a share, reflecting a growth of 15.5% from the year-ago quarter. The current Zacks Consensus Estimates for the quarter range from a low of 63 cents to a high of 69 cents.

Zacks Agreement & Magnitude

Of the 23 analysts following the stock, four analysts revised the estimate downwards in the last 30 days. However, it had no material impact on the Zacks Consensus Estimate for second-quarter 2011. In the last 7 days, three analysts revised the estimate in the downward direction leaving the Zacks Consensus Estimate unchanged.

Mixed Earnings Surprise History

With respect to earnings surprises, Lowe’s has topped as well as missed the Zacks Consensus Estimate over the last four quarters in the range of negative 5.6% to positive 16.7%. The average remained at 3.2%. This suggests that Lowe’s has beaten the Zacks Consensus Estimate by an average of 3.2% in the trailing four quarters.

Lowe’s Holds Zacks #4 Rank

Currently, we have a ‘Neutral’ rating on the stock. However, Lowe’s holds a Zacks #4 Rank, which translates into a short-term ‘Sell’ recommendation.

Lowe’s boasts a proven strategy of investing in stores to enhance customer-shopping experience by improving point-of-sale and directional signage, while adding more product selection. The company’s sustained focus on Everyday Low Prices, New Lower Price, Go Local and Specialty Sales initiatives, have helped it to grow its market share.

The company notified that in the coming few years, it plans to concentrate more on private label brands, with a target of increasing its penetration to 18% from 15% currently. We believe that the company’s increased focus on private label products should facilitate margin improvement.

However, Lowe’s in the home improvement retailing business faces stiff competition from The Home Depot Inc. (HD), The Sherwin-Williams Company (SHW) and other home supply retailers on attributes such as location, price and quality of merchandise, in-stock consistency, merchandise assortments, and customer service. This may weigh upon the company’s results.

Further, Heavy job losses and reduced access to credit have lead to a sharp fall in consumer discretionary spending on big-ticket items. Although the economy is showing signs of revival, we believe that spending on big remodeling projects will likely remain under pressure until the housing market stabilizes and consumer-spending rebounds.

HOME DEPOT (HD): Free Stock Analysis Report

LOWES COS (LOW): Free Stock Analysis Report

SHERWIN WILLIAM (SHW): Free Stock Analysis Report

Zacks Investment Research

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