Lowe's ( LOW) still has the wind at its back. The home-improvement chain, which has been among Wall Street's favorite retailers over the past year, boosted fourth-quarter earnings guidance Monday, pushing its stock price near a 52-week high. Warm weather in December and January kept the nation's would-be Bob Vilas tinkering, boosting sales at the Wilkesboro, N.C., company. The optimism underscores strength in recent months of the home and home-improvement retailers, in contrast to rivals that sell apparel and other goods. The company's comments also offer a refreshing bit of corporate candor, acknowledging as they do that good weather can boost financial results just as poor weather can hurt them. Lowe's closed at $46.36 on Monday, up 66 cents, or 1.44%.
Lowe's said same-store sales, which measure activity in shops open at least a year, would top its previous guidance of a 3% to 5% increase. Earnings will exceed 24 cents a share, beating the 23-cent Wall Street estimate, according to Thomson Financial/First Call. Lowe's cited a "resilient consumer" for the earnings surprise, while remarking on its continued progress in controlling expenses. But also noteworthy was the company's rare citation of good weather as a driver of better-than-expected results. Blaming poor weather for unsatisfactory results has become almost an inside joke among investors. In many cases, unseasonable weather does hurt sales and profits, of course, but some on Wall Street note that stronger-than-expected results are rarely accompanied by such disclaimers. In December, several retailers, including American Eagle Outfitters ( AEOS) and BJ's Wholesale Club ( BJ), blamed warm weather for November sales shortfalls. "Unseasonably warm weather in the Northeast, where the majority of our clubs are located, contributed to already slow trends in cold weather items such as snow tires, heaters, outerwear and snow removal tools," BJ's CEO Jack Nugent said at the time. But an earnings warning issued by BJ's a month later offered other compelling reasons: an "unfavorable merchandise mix and aggressive competitive pricing."
Neck and Neck
The continued strength at Lowe's counters the generally weak results at other retailers. Home retailers have performed particularly well in recent months, benefitting from what observers are calling the post-Sept. 11 "cocooning trend," in which consumers spend to fix up and decorate their houses rather than traveling or going out to restaurants. Companies such as Pier One ( PIR) and Williams-Sonoma ( WSM) reported bang-up holiday-season results. Lowe's rival Home Depot ( HD) also has benefited from consumers' newfound homesteading interest. Bob Nardelli, Home Depot's chief executive, told reporters at a public event in Atlanta that the company feels "very good about the fourth quarter." Home Depot and Lowe's are both scheduled to report fourth-quarter results at the end of the month. Last year, Lowe's stock significantly outperformed Home Depot's, as Wall Street touted Lowe's cheaper stock and greater expansion potential. Shares in Lowe's shot up 108% last year; Home Depot rose about 12%. As a result, upstart Lowe's caught up with Home Depot on valuation, and now most analysts see the stocks as roughly equivalent in value terms. Lowe's trades at a forward price-to-earnings ratio of 30.5, while Home Depot trades at 32.7. Both are expected to grow at around 20% annually, according to Thomson Financial/First Call. Dan Wewer, an analyst at Deutsche Banc Alex. Brown, reiterated his strong buy ratings on both stocks Monday. His firm doesn't do banking for either company. He slapped a $60 price target on both stocks, saying, "We are getting further evidence that the home improvement fundamentals are accelerating quicker" than at other hard-goods retailers. Thanks to Mother Nature.