Either there is a reliable crystal ball somewhere in Lowe's (NYSE:LOW) corporate boardroom, or management of the home-improvement retailer feels quite confident about its prognostication skills. Either way, there are some bullish signals coming from the company this morning.
While some firms will issue a profit forecast for only the next quarter and others such as Dillard's (NYSE:DDS) refuse to release any guidance period, Lowe's has provided earnings estimates for the next two and a half years. The Mooresville, N.C.-based company is anticipating earnings to rise 15% to 16% this year, 21% to 24% next year, and 18% to 20% in fiscal 2006.
Lowe's sanguine outlook comes one day after the U.S. Commerce Department reported that sales of new homes jumped 9.4% in August, helped by mortgage rates that have dipped to a four-month low. The growth rate was the fastest in four years, music to the ears of Lowe's and rival Home Depot (NYSE:HD). Sales were particularly strong in the South (up 13%) and West (up 20%). According to the National Association of Realtors, about 1.16 million homes will be sold this year, surpassing last year's record 1.08 million.
Lowe's is still seeing a spike in business around the Gulf Coast, where the 1-2-3 punch of Hurricanes Charley, Frances, and Ivan wreaked havoc, spurring demand for everything from lumber to sheetrock to generators. The company has 60 stores in Florida, and rebuilding efforts are expected to yield an overall 3% to 4% improvement in same-store sales this quarter (after a 12.4% rise last year), lifting earnings 16% to $0.65. Previous guidance calling for a 6% rise in full-year comps was also reaffirmed, along with earnings of $2.69 to $2.71.
As a responsible corporate citizen, Lowe's is donating up to $1 million to the American Red Cross Disaster Relief fund. Home Depot also has pledged millions of dollars in tools and supplies, as well as the community service repair efforts of its workers.
Lowe's will also be busy building its own store base. One hundred and fifty new units are projected to open in each of the next two years, increasing overall square footage by 14% next year and another 12% in 2006. The ambitious expansion plans are projected to grow revenues by 16% per year.
This morning's forecasts are encouraging, but earnings guidance is only as accurate as the assumptions that are factored in. With an expanding economy, falling unemployment, and increasing home remodeling and construction activity underpinning Lowe's projections, though, the company has reason to be optimistic.
Check these stories out for more on Lowe's and rival Home Depot:
Fool contributor Nathan Slaughter has little talent for home-improvement projects, though he did install a shelf last night. He owns none of the companies mentioned.
