Updated from 7:41 a.m. EST

Lowe's

(LOW) - Get Report

third-quarter earnings rose 15.5% from a year ago, but the home supply chain disappointed investors by keeping its fourth-quarter guidance in place.

The company earned $522 million, or 66 cents a share, compared with earnings of $452 million, or 56 cents a share, last year. The results beat expectations on Wall Street, where analysts had been forecasting earnings of 65 cents a share on revenue of $8.99 billion in the most recent quarter.

"Continued signs of a robust housing market, improving employment and strong demographic trends provide a foundation for our optimism for the future," Robert Tillman, Lowe's chairman and CEO, said in a statement.

Shares of Lowe's weighed on the retail sector, however, falling $1.96, or 3.2%, to $58.29. Piper Jaffray analyst Mike Cox said the disappointment came in Lowe's fourth-quarter guidance, which matched consensus estimates, calling for earnings of 58 cents to 60 cents a share on overall sales that are up 16% to 17% from a year ago.

"In our view, and in light of the stock's recent runup over the past three months, it is likely that many investors were expecting the company to set fourth quarter guidance ahead of consensus views," wrote Cox in a research note Monday.

He also said the projected same-store sales growth of 4% to 5% for the quarter shows a decelerating trend in that key measure of retail performance.

For the third quarter, revenue rose 16.2% from a year ago to $9.1 billion, helped largely by posthurricane sales in the Southeast. Those sales gains reflect a 5.2% increase in same-store sales.

Lowe's third-quarter performance showed both higher sales and tighter expense control. Cost of sales were $6.01 billion in the latest quarter, or about 66.34% of sales, compared with $5.36 billion, or 68.71%, a year ago. Gross margin was 33.66% in the 2004 quarter compared with 31.29% a year ago.

In a conference call Monday, Lowe's CFO Robert Hull said hurricane-related costs hurt the company's gross margin by about 15 basis points during the quarter.

The company noted that its two-year same-store sales performance in the third quarter was the best in nearly a decade. "Continued signs of a robust housing market, improving employment and strong demographic trends provide a foundation for our optimism for the future," the company said.

Tillman was sanguine about the job market.

"As more and more people are employed or become confident they will remain employed, consumer confidence will improve and consumer spending should follow," Tillman said.

Despite Monday's losses, Lowe's stock is up more than 25% since the beginning of August, fueled by optimism about the levels at which retiring baby boomers are expected to be spending on their homes.