Lowe's Whacked as Outlook Worsens

Shares tumble as the home-improvement retailer again cuts guidance.
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Updated from 7:48 a.m. EST

Shares of

Lowe's

(LOW) - Get Report

tumbled Monday after the home-improvement retailer posted a 10% decline in third-quarter earnings and slashed its targets for the full year.

The guidance cut -- Lowe's fourth since February -- comes on the heels of a similar move from rival

Home Depot

(HD) - Get Report

last week as the deteriorating housing market wreaks greater-than-expected havoc on home-improvement retailers. Both companies have also warned that they expect tough conditions to continue into 2008.

Shares of Lowe's were sliding $1.01, or 6%, to $23.50, while Home Depot dropped 60 cents, or 2.1%, to $28.47.

For the quarter ended Nov. 2, Lowe's earned $643 million, or 43 cents a share, down from $716 million, or 46 cents a share, a year earlier. A $112 million drop in liabilities for workers compensation and general liability claims boosted results by 5 cents a share.

The earnings per share were at the low end of Lowe's forecast for a profit of 43 cents to 45 cents. Analysts, on average, had anticipated earnings of 41 cents a share, according to Thomson First Call.

Lowe's sales rose 3.2% to $11.57 billion from $11.21 billion a year earlier, missing the company's targeted range for 7% to 8% growth. Analysts expected sales of $11.78 billion.

Same-store sales, or sales at stores open at least a year, dropped 4.3%. In August, Lowe's had forecast flat same-store sales.

"Many external factors contributed to the weak sales environment, including a continuing housing correction, drought conditions in several U.S. markets, and slower than expected sales in Gulf Coast markets," said Chairman and CEO Robert Niblock. "Clearly the largest of these impacts was the unstable housing environment evidenced by an even steeper decline in housing turnover, falling home prices in many markets, and a near record inventory of homes for sale."

Lowe's said the home-improvement consumer remains pressured by these issues, as well as tighter standards in the mortgage market and rising financial obligations.

"We believe our guidance for the fourth quarter reflects these factors and is appropriately conservative given the uncertainties that exist," said Niblock.

For the fourth quarter, Lowe's sees earnings of 25 cents to 29 cents a share, worse than Wall Street's projection of 36 cents. The company anticipates a year-over-year sales gain of 3%, with a same-store sales decline of 3% to 5%.

Lowe's now projects full-year earnings of $1.83 to $1.87 a share. In late September, the company projected earnings at the low end of its prior range of $1.97 to $2.01.

The company also cut its sales view, predicting 3% to 5% growth. Previously, it targeted a 6% rise. Same-store sales are expected to fall 4%.

Analysts currently project earnings of $1.93 a share and sales of $49.19 billion, according to Thomson.

Lowe's said it expects the weakness in its industry will continue into 2008.

"It's clear that the pressures on our industry and the home improvement consumer are greater than we previously anticipated and are likely to last longer than we expected," Niblock said on the company's conference call, according to a transcript from Thomson StreetEvents.