(Reuters) - Lowe’s Cos (LOW.N), the world’s second-largest home improvement chain, reported higher-than-expected quarterly sales as a warm winter prompted many homeowners to take up renovation projects that they normally save for the spring.
The results echoed those from larger rival Home Depot Inc (HD.N), which also reported stellar sales due to strong demand for everything from paint to concrete in the unseasonably warm quarter.
Lowe’s results came just days after a host of data pointed to a budding housing recovery after years of weakness and excited some industry-watchers over the prospects of the home-improvement segment.
“We encourage investors to look past the near term and think about double-digit margins for all when housing recovers,” said Credit Suisse analyst Gary Balter, who has an “outperform” rating on both chains.
Signed contracts for U.S. home resales rose to a nearly two-year high in January, an industry group said on Monday, further evidence of a recovery in the housing market. The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in January, rose 2 percent to 97.0 - the highest reading since April 2010.
Graphic-Lowe's vs Home Depot link.reuters.com/zuv76s
Graphic-pending home sales link.reuters.com/kyv76s
Some analysts downplayed the possibility that the strong, warm weather-inspired sales would come at the expense of the all-important spring season.
“You didn’t pull forward that much,” said Bernstein analyst Colin McGranahan. Some sales, he said, came from people choosing to take up some small home projects with the money they would have normally spent on items like sweaters, boots and coats if the weather had been colder.
McGranahan still sees homeowners doing larger projects in the spring, the biggest selling season of the year for the home improvement chains, if the weather is normal.
However, he sees little room for a further run-up in both chains’ shares as the market has already taken into account a potential boost from a housing recovery.
Lowe’s shares were up 1.8 percent at $27.66 on Monday morning, while Home Depot shares edged up 0.1 percent to $47.04.
Lowe’s is also benefiting from a host of initiatives to win shoppers, including a recent move to shift away from promotions to more everyday low prices.
The retailer has also started offering more localized products, improved its website and tried to enhance the in-store experience by using better signage and technology.
“This also shows a company making progress in its transition,” said Janney Capital Markets analyst David Strasser, who has a “buy” rating on the stock.
The company’s sales rose 11 percent to $11.63 billion in the fourth quarter ended on February 3, well ahead of the analysts’ average estimate of $11.34 billion, according to Thomson Reuters I/B/E/S. Sales at stores open at least a year rose 3.4 percent.
Net income rose to $322 million, or 26 cents a share, from $285 million, or 21 cents a share, a year earlier.
Excluding special items, the profit was 29 cents a share, beating the analysts’ average estimate of 24 cents, according to Thomson Reuters I/B/E/S.
For the current fiscal year, Lowe’s forecast earnings of $1.75 to $1.85 a share.
Reporting by Dhanya Skariachan; Additional reporting by Ranjita Ganesan; Editing by Lisa Von Ahn, Maureen Bavdek and Matthew Lewis