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Updated from 8:39 a.m. EST


(LOW) - Get Lowe's Companies, Inc. Report

posted fiscal fourth-quarter earnings that easily topped Wall Street expectations as the retailer continued to reap the downstream benefits of the buoyant housing market.

The nation's No. 2 home-improvement retailer posted earnings for the quarter ended Jan. 31 of $319.4 million, or 40 cents a share, seven cents a share better than the Thomson Financial/First Call estimate and up 46% from year-earlier results of $218 million, or 28 cents a share. Revenue rose 17% to $6.1 billion. And the company forecast full-year earnings slightly higher than analysts' estimates.

The impressive results stand in marked contrast to larger rival Home Depot, which recently trimmed its outlook for earnings growth. Wall Street cheered the Lowe's results, and Jefferies upgraded Lowe's shares to Buy from Hold with a $43 target price. In premarket trading, Lowe's shares climbed $1.24, or 3.4%, to $37.26.

Helping to drive Lowe's fourth quarter results was a strong improvement in the company's gross profit margin, which measures the difference between what a company charges for its goods and what it pays for them. In the fourth quarter, Lowe's posted gross margins of 31.6% of sales, up 185 basis points from the same period last year.

In a conference call with investors and analysts, company President Robert Niblock attributed the improvement in gross margin to sales of more profitable seasonal items, a better product mix and decreased sourcing costs. About 38 points of the margin improvement came from a decrease in lost inventory, also known as "shrink," Niblock said.

The company's gross margin improvement far exceeded its guidance of 50 to 60 basis points. And 2002 marked the first year in Lowe's history that the company's posted gross margins that exceeded 30% of sales, Niblock said.

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"Shrink continues to be an area of focus as we strive to deliver better results," he said. However Niblock noted that the company does not expect shrink or margin to improve in 2003 as dramatically as in 2002.

Lowe's marketing and administrative expenses also decreased slightly in the quarter as a portion of sales. However, such costs increased by 16 basis points as a percentage of sales for the year. Niblock attributed this cost increase in part to a performance-based bonus system for the company's store managers.

Lowe's awarded $230 million in performance-based bonuses in 2002, up from about $100 million in 2001. Noting the strong improvement in the company's earnings, Niblock said the cost increase was a fair trade.

"We think this is a winning formula," he said.

Lowe's opened 31 new stores and relocated 6 more in the fourth quarter. For all of 2002, the company opened 112 new stores and relocated 11 others.

The home improvement chain plans to continue its expansion in 2003, expecting to open 130 new stores over the year, including about 20 in the first quarter.

Despite the continuing expansion, Niblock noted that 2002 marked the first year that Lowe's was cash flow positive for the year.

The company said it expects fiscal first quarter per-share earnings of 51 cents to 53 cents; Wall Street forecasts 51 cents a share earnings. For the year, Lowe's expects to earn between $2.16 and $2.20; analysts had projected the company will earn $2.11.

"In 2002, amidst a backdrop of economic uncertainty, Americans continued to invest in their largest asset, their homes," said Lowe's Chairman and CEO Robert L. Tillman. "Despite the uncertainties that remain in the broader economic and geopolitical environment, I'm optimistic that the home improvement consumer will remain resilient."