Earnings Beat Lifts Lowe's

Updated from 10:12 a.m. EDT

SAN FRANCISCO -- Lowe's(LOW Quote) pulled off a stronger-than-expected second-quarter profit, but the retailer warned of more weakness ahead as the housing slump continues to sap consumers' willingness to spend on home improvements.

Still, shares of Lowe's recently were climbing $1.77, or 6.6%, to $28.64, after the company posted improved margins and seemed to fare better in sales than its bigger rival Home Depot(HD Quote).

The Mooresville, N.C., home-improvement retailer made $1.02 billion, or 67 cents a share, for the quarter ended Aug. 3, up from the year-ago $935 million, or 60 cents a share.

Sales rose to $14.17 billion from $13.39 billion a year earlier. Same-store sales, or sales at stores open at least a year, slipped 2.6%.

Analysts surveyed by Thomson Financial were looking for a 61-cent profit on sales of $14.13 billion.

Lowe's said the earnings beat was helped by improved gross margins, which climbed to 34.5% in the quarter from 33.4% a year earlier. That helped to offset yet another drop in same-store sales, which have been on the decline over the past year amid the housing slowdown.

"The sales environment remains challenging as home improvement consumers hesitate to take on longer discretionary projects," said CEO Robert Niblock in a conference call after the earnings release.

Niblock said that parts of the country are feeling the housing slump more acutely than others, and stores in those regions are performing accordingly. In California, for instance, same-store sales have fallen by double-digit numbers in the second quarter, faring worse than in the first quarter.