Will Lowe's Get Back?

Home improvement retailer Lowe's (NYSE: LOW  ) reported first-quarter results today that confirm conditions remain grim in any business related to residential housing. 

Diluted earnings of $0.41 did beat analyst projections by a penny, but sales were lighter than expected and fell 1.3% lower than last year's. Penny-pinched consumers weren't headed to Lowe's this quarter.

Same-store sales plummeted 8.4%, which more than offset sales from the 20 new stores Lowe's opened. Management has plans to open 120 new locations during its fiscal year, representing a 7%-8% growth in square footage, but of course no one can say when the challenging macroeconomic environment of fuel, food, and other inflation will improve. 

Management also stated that 80% of its stores exist in markets where housing prices are declining, and as a result homeowners are hesitant to take on the big-ticket projects that can really drive comparable store trends.

While management found its April comps figure (which dropped just 1%) encouraging, it continues to control what it can by deleveraging payroll and staying conservative in building inventory for the all-important spring season. Customers preparing for gardening helped nursery sales, and management cited decent trends in the flooring, paint, and appliance categories. 

On balance, though, higher fuel costs ate into gross margins, and there isn't too much the company can do to entice the embattled U.S. consumer, beyond keeping its customer service scores high and keeping prices low on items considered everyday purchases.

As it stands right now, Lowe's expects second-quarter earnings to fall between 12% and 19%. The wide range indicates that it's difficult to predict what the near future will bring. Management is calling for full-year earnings of $1.45-$1.55 and mentioned it now thinks its projections are conservative enough. 

We'll soon know more about industry conditions. Archrival Home Depot (NYSE: HD  ) is set to release earnings tomorrow, though key suppliers to the DIY giants, such as Whirlpool (NYSE: WHR  ) , Black & Decker (NYSE: BDK  ) , and Deere (NYSE: DE  ) have already confirmed that domestic profit growth won't happen soon.     

As it stands currently, Lowe's is trading at a P/E ratio of about 16, which is reasonable, considering that operating results are probably depressed in the current industry climate. Again, when a recovery will occur is anyone's guess, but patient investors like me are gunning for significant gains when the housing cycle does eventually turn -- or stabilizes. In the meantime, Lowe's continues to gain share on its smaller, less well-capitalized competitors.    

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