Lowe's Cos reported weaker-than-expected quarterly results on a slow start to the spring selling season, prompting the world's second-largest home improvement chain to cut its forecast for the year.
Colder-than-usual weather hurt demand for seasonal goods and kept shoppers away in many parts of the United States, Lowe's main market. Also, demand for expensive home projects was weak as homeowners remained cautious in an uneven U.S. economy.
The disappointing results in a key selling season renewed concerns about demand in the world's largest economy and pushed Lowe's shares down 1.5 percent to $25.38 on Monday. Shares of Wolseley, the world's largest heating and plumbing products distributor, also fell on the news.
The home improvement industry is suffering from a perfect storm of a cold spring, a four-year drought in the housing market and a rising tide of food and fuel prices, which are all conspiring to depress discretionary demand, said Craig Johnson, president of research firm Customer Growth Partners.
Lowe's cut its fiscal-year profit forecast to a range of $1.56 to $1.64 a share, down from its prior outlook of $1.60 to $1.72. The forecast was also below the analysts' average estimate of $1.70 a share, raising concerns about demand for the rest of the year.
Customers may feel better about their employment situation, but are uneasy due to higher fuel, clothing, and food costs as well as geopolitical issues around the world, Chief Executive Officer Robert Niblock said.
The lowered outlook implies Lowe's has less confidence about sales in its second half, Credit Suisse analyst Gary Balter said.
There is little evidence that the underlying housing market in America is stabilizing, and improvements from the macro are looking more like a 2012 event, if then, Balter said.
Niblock said he still expected the second half to be better than the first, adding that stabilization of home prices would be key for sales recovery.
U.S. homebuilder sentiment was unchanged at low levels in May as ongoing foreclosures and tight credit kept buyers reluctant to get into the market, the National Association of Home Builders said on Monday.
Lowe's results raise a lot of questions, RBC Capital Markets analyst Scot Ciccarelli said.
Is it all weather? Ciccarelli said. Is it the impact starting to get felt from higher gas prices? Or probably, most ominously, is it the recent double dip we started to see in home prices?
INCLEMENT WEATHER HURTS
Both Lowe's and larger rival Home Depot Inc are up against strong numbers from last year, when a first-time home buyer tax credit and a cash for appliances program boosted demand. Home Depot is due to report its quarterly results on Tuesday.
Sales at Lowe's stores open at least a year fell 3.3 percent in the first quarter ended on April 29. JPMorgan analyst Christopher Horvers expected only a 2 percent decline.
Net income fell to $461 million, or 34 cents a share, from $489 million, or 34 cents a share, a year earlier. Analysts on average were expecting 36 cents a share, according to Thomson Reuters I/B/E/S.
Sales fell 1.6 percent to $12.19 billion, missing the analysts' average estimate of $12.52 billion.
For the fiscal year ending on February 3, the company sees sales rising about 4 percent, with same-store sales flat to up 1 percent.
(Additional reporting by Leah Schnurr; Editing by Lisa Von Ahn, Maureen Bavdek and John Wallace)