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Updated from 8:37 a.m. EDT

A quarter after disappointing investors with a revenue shortfall,



bounced back on Monday, posting strong revenue and sales growth.

In its second quarter ended Aug. 1, Lowe's earned $597 million, or 75 cents a share, on $8.77 billion in sales. Compared with the same period a year ago, the home-improvement retailer's per-share earnings jumped 27.1%, and its revenue grew 17.2%.

The results topped analysts' estimates and the company's guidance. Wall Street had been expecting Lowe's to earn 69 cents a share on $8.51 billion in sales, according to Thomson First Call. Lowe's officials projected that the company would earn 60 cents to 70 cents a share on 13% sales growth.

The company's better-than-expected results boosted its stock in early trading on Monday. In recent trading, Lowe's shares were up $1.80, or 3.68%, to $50.70.

Top-Line Blowout

"The earnings were great, but I liked the revenue better," said Jay Ferguson, a portfolio manager with Ferguson, Andrews Investment Advisers, which is long Lowe's. "They had a huge rebound."

Lowe's officials expect the company's good fortune to continue, raising their full year-guidance. In the third quarter, the company expects to earn 50 cents to 51 cents a share on sales growth of 16% to 17%. For the year, the company projects earnings of $2.24 to $2.27 a share on 16% revenue growth.

Previously, company officials estimated that Lowe's would earn $2.16 to $2.20 this year on 14% to 15% sales growth. Wall Street had projected the company would earn 50 cents a share in the third quarter and $2.19 for the year.

A number of analysts worried about Lowe's earlier this year. In the first quarter, the company's same-store sales, which compare results at outlets open for more than one year, grew by just 0.1%. That rate of growth was far slower than the company had been posting and below its projected growth rate of 2% to 4%.

But the company's same-store sales picked up considerably in the second quarter, growing by 6.9%. That compares with 6.8% same-store sales growth in the year-ago period.

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Back Outside

On a conference call with investors and analysts, company officials attributed the same-store sales growth to a number of factors, especially weather. Unseasonably cold weather helped to keep a lid on sales in the first quarter, by dampening demand for outdoor products such as garden materials and lawn equipment, they said. Sales of such products picked up as the weather improved, company officials said.


same-store sales improvement followed the weather," said company president Robert Niblock.

Lowe's same-store sales were positive in each of its geographical areas and in each of its product categories, company officials said.

Lowe's revenue growth has been erratic the last two quarters, but it's not something to worry about, said one hedge fund analyst. The poor weather, the war in Iraq and the poor economy overall made the first quarter one of the worst in retail in the last 15 years, the analyst said. With the war over, the weather better and the economy improving, Lowe's should continue to do well, the analyst said.

"In many ways, they are now becoming the class act," said the analyst. "They are catching, if not surpassing,

Home Depot



In addition to strong revenue growth, Lowe's showed some improvement on its expenses in the quarter.

As a portion of sales, the company's gross margin -- the difference between what a company charges customers for its products and services and what it pays suppliers for them --increased 76 basis points to 30.17%. That improvement came as a result of higher merchandise margins, a better mix of products sold and decreased shrink, or inventory loss, company officials said.

In terms of operating expenses, Lowe's also saw some gains, as marketing, general and administrative expenses shrank 16 basis points as a portion of sales to 16.31%. However, company officials said the decreasing operating costs were due largely to a decline in performance-based bonuses paid to employees. Bonuses declined because the company's profit growth this year has been slower than last year, they said.

For the first half of this year, Lowe's has posted $1.68 billion in operating cash flow, up from $1.63 billion in the first half of last year. The company has recorded about $670 million this year in free cash flow -- the difference between operating cash flow and purchases of fixed assets such as new stores. That amount is down from the first half of last year, during which it posted $718 million in free cash flow.