Lowe's cuts forecast on poor housing markets
Last Updated: Monday, November 17, 2008 | 11:09 AM ET
CBC News
Home improvement chain Lowe's Companies Inc. cut its profit forecast for the rest of 2008 because of a continuing slide in the U.S. housing market, the company said Monday.
Lowe's, which has stores in Canada and the United States, said it expects to earn $1.48 US to $1.56 a share for the current fiscal year. The company's profit target represented a two penny drop at each end of its earnings-per-share range from Lowe's' earlier prediction.
"While falling energy prices and initial signs of stabilization in housing turnover should aid the consumer, we saw a decline in sales trends in the last week of October that continued into November as the overall economic outlook deteriorated," said Robert Niblock, Lowe's chairman and chief executive officer.
Lowe's third quarter profit took a beating for the period ended Oct. 31, down 24 per cent to $488 million and could be sign of a difficult week for home improvement stocks.
Home Depot up on Tuesday
On Tuesday, Home Depot Inc. is expected to report its third quarter earnings.
Similar to other housing-oriented stocks, Home Depot has been signalling to investors that the coming quarters will be tough.
When it announced its second-quarter earnings, the Atlanta-based company said sales for 2008 could slip by as much as five per cent.
Both companies are facing a perfect financial storm as tightening credit markets, falling employment and plunging consumer confidence have home prices and new house construction sharply declining, especially in the United States.
"This is not a temporary phenomenon as almost all of the fundamentals driving consumption are heading south on a persistent and structural basis," said Nouriel Roubini, an economics professor with New York University's Stern School of Business, said earlier in November.
The price for a single-unit family-type home in the United States was almost eight per cent lower in the second quarter of 2008 compared to the same three-month period one year earlier.
Worse still, that decline was measured at a time prior to the ongoing financial crunch.
Gloomy sector
House improvement companies have been getting pounded throughout 2008.
Home Depot said same-store sales for the second quarter — a measure of revenue that removes the effect of new store openings — fell by nearly eight per cent.
Canadian home improvement chain Rona Inc., which reported its latest earnings on Nov. 11, said its same-store sales slipped in that quarter by 2.3 per cent compared to one year earlier.
Williams-Sonoma Inc., famous for ultra-expensive cookware and foodstuffs, also warned that its 2008 sales will top out at approximately $3.3 billion, a drop of slightly more than eight per cent compared to the company's earlier guidance.
Even super-investor Warren Buffett has not been immune from the contagion hitting the home building and home improvement sectors. Buffett's company, Berkshire Hathaway Inc., saw earnings at its Clayton Homes house-building subsidiary tumble to $7 million in the latest quarter, down from $129 million for the same period in 2007.
Interestingly, one company that has bucked the downward trend is Fastenal Co.
The Minnesota-based maker of metal fasteners and other equipment for the hardware sector, reported revenue up 17 per cent in its latest financial report along with net earnings that rose to 49 cents a share versus 41 cents a share for the same period one year earlier.
