Lowe’s reports third-quarter profit drop of 24 percent
Mooresville, N.C.-based Lowe’s Cos. reported that third-quarter profit fell 24 percent — its fifth straight quarterly profit decline — as consumers eschewed home improvement projects and big-ticket purchases.
“The third quarter continued what has been a very difficult period for our industry as many exterior factors weighed on home improvement sales,” Lowe’s chairman and CEO Robert Niblock said during a conference call Monday. “We expect continued, broad-based external pressures on our industry, as rising unemployment, falling home prices, tight credit and volatile equity markets continue to erode consumer confidence and impact sales.”
Lowe’s said profit fell to $488 million in its fiscal third quarter, down 24.1 percent from $643 million in the year-ago period. Sales for the quarter increased 1.4 percent to $11.7 billion, up from $11.6 billion in the third quarter of 2007. The retailer forecast fourth-quarter profit below current Wall Street estimates and cut its full-year outlook, citing deteriorating economic conditions.
For the nine months ended Oct. 31, 2008, net earnings declined 15.3 percent to $2.03 billion while sales increased 0.9 percent to $38.2 billion. Comp-store sales for the third quarter declined 5.9 percent and 6.5 percent in the first nine months of 2008. Lowe’s had called for a decline of 5 percent to 7 percent in comp sales in the third quarter. It forecasts a comp-store sales decline of 5 percent to 10 percent in the fourth quarter, with the 10 percent figure more likely at this point.
In the third quarter, Lowe’s said eight of its 10 regions fell by double digits. The two positive regions were the Ohio Valley and Southern Texas, which were fueled by hurricane-related purchases.
Lowe’s said sales in the quarter were also up in home maintenance and outdoor projects. Larry Stone, president and COO, said consumers are willing to take on smaller projects and continue to spend on energy-efficient items like programmable thermostats.
Niblock said the positives — housing turnover seems to be bottoming out and fuel prices continue to drop — could not prevent a sales trend decline that began in the last week of October and has continued into November.
However, Niblock assured investors that “Now is not the time to stray from the basics of retailing. We will continue to provide great service to customers, increase market share and control expenses in a prudent manner.”
During the quarter, Lowe’s said it opened 39 new stores.
Looking ahead, the company expects sales to range from a decline of 3 percent to an increase of 2 percent in the fourth quarter. Meanwhile, 33 to 38 new stores are expected to open during the same period.
Spectrum Brands plans to exit fertilizer category
Spectrum Brands, a leading manufacturer of lawn and garden products, pest control products, pet supplies and other consumer goods, will stop making fertilizer and several other products in its Home & Garden Business segment in an effort to stem losses. The Atlanta firm announced the decision as part of its fourth-quarter 2008 results, which posted a net loss of $492.6 million, compared to a loss of $333 million for the same quarter of 2007.
Sales for the quarter, which ended Sept. 30, 2008, were $706.5 million, a 7.2 percent increase over the prior year, after excluding the Canadian division of the Home & Garden Business segment, which the company sold in November 2007.
Year-end figures showed a loss of $931.6 million for 2008, compared to losses of $596.8 million in fiscal 2007. Annual sales for fiscal 2008 were $2.68 billion, a 4.8 percent rise over fiscal year 2007 sales of $2.56 billion.
In a prepared statement, the company said it decided to exit the manufacture of fertilizer, potting soil, mulch and grass seed because they had become “a drag on profitability.” The sluggish housing market, tight inventories at retailers, low levels of foot traffic and unprecedented commodity costs — particularly DAP and potash — all worked against the company’s efforts to boost margins, it said. Spectrum also tried to sell this segment of the business, in part or whole, but failed. “The company believes these attempts were unsuccessful due to the current credit market environment,” Spectrum said in its statement.
Spectrum also has exclusive private-label manufacturing agreements with national retail chains, including the Vigoro brand at Home Depot, Sta-Green at Lowe’s and Expert Gardener at Wal-Mart. A Spectrum Brands spokesperson could not comment on whether the company would end these particular partnerships.
Spectrum’s Home and Garden Business will continue to manufacture a number of other products, including outdoor and indoor insect control products, insect repellants and rodenticides. Continuing brand names include Spectracide, Cutter, Hot Shot, Repel, Garden Safe and Schultz.
Spectrum Brands also makes Rayovac batteries, Remington electric shavers, Tetra aquarium supplies and other consumer products.
NLBMDA calls for housing stimulus
The National Lumber and Building Material Dealers Association (NLBMDA) is calling on Congress to take bold action before the end of the year to boost the housing market.
Specifically, the NLBMDA seeks an extension of the Home Buyer Tax Credit for primary residences purchased between April 2008 and December 2009, to up to 10 percent of the home price up to a maximum of $22,000, depending on geography. In addition, buyers should have access to discounted 30-year fixed-rate mortgage financing that would encourage eligible home buyers to enter the market.
The organization pointed to the success of a similar credit plan in the 1970s.
“In 1975, Congress passed a short-term home buyer tax credit for all new homes, coupled with subsidized mortgage rates,” said NLBMDA president and CEO Michael O’Brien. “This stimulus jump-started the depressed housing market then, and the effects continued long after the measure expired. We believe Congress must once again take bold action to restore consumer confidence in the market.”
The NLBMDA is also urging Congress to extend bonus depreciation and increased Section 179 expensing provisions for at least one year. The move would promote investment during the current economic downturn, according to the group. The Economic Stimulus Act signed into law in February temporarily created a 50 percent depreciation bonus and increased the amount that small businesses can expense under Section 179 to $250,000, but those provisions are due to expire at the end of 2008. Additionally, the NLBMDA is asking Congress to extend net operating loss (NOL) carryback provisions from two years to five to allow building material dealers to discount current losses against past profits.
“Taken together these proposals will go a long way toward reviving the housing economy, which is key to overcoming our current economic crisis,” said O’Brien. “We are calling on all our members to contact their members of Congress to urge quick action.”
The NLBMDA believes that its housing stimulus proposal will create much-needed jobs. Almost 85,000 jobs have been lost in the past two months in the construction industry alone, mostly in specialty trades related to home building, according to the industry group.