Lowe’s Cos. posted second-quarter profit that trailed analysts’ estimates, showing that the home- improvement retailer isn’t benefiting as much from the long expansion in housing prices as Home Depot Inc.
Profit in the three months through July 31 was $1.20 a share, Mooresville, N.C.-based Lowe’s said Wednesday. Analysts estimated $1.24.
Lowe’s and Home Depot both have capitalized on years of housing price gains, but Lowe’s is struggling to execute as well its larger rival. Lowe’s profit has now trailed analysts’ projections in four of the last eight quarters, and Home Depot has missed only once in that time. In the second quarter, Lowe’s sold more less-profitable items and didn’t control expenses as well as analysts had expected.
Lowe’s gross margin, or the percentage of sales left after cost of goods sold, narrowed to about 34.48 percent in the second quarter from 34.55 percent a year earlier. Analysts had projected the measure would expand to 34.61 percent.
The reduced profitability may have been caused by sales of more low-margin items like appliances, David Schick, an analyst for Stifel Financial Corp., said. Weakening margins also are often caused by an increase in discounting.
Selling, general and administrative expenses at Lowe’s were about 20.95 percent of sales in the quarter, down roughly 38 basis points from a year earlier. Citigroup’s McShane had estimated they would drop by 53 basis points.
Same-store sales, a key measure of growth because only established locations are counted, rose 4.3 percent in the quarter. While that tops the 3.9 percent gain analysts had projected, it’s the slowest growth in five quarters. Revenue by the same measure advanced 4.2 percent at Home Depot.
Lowe’s also reiterated its annual forecast for earnings of $3.29 a share and same-store sales gaining 4 percent to 4.5 percent. Given that revenue by that measure advanced 4.7 percent in the first half, Lowe’s is expecting a slowdown in the final two quarters of the year.
Home Depot raised its earnings and sales forecasts on Tuesday.
