October 07, 2000|By BLOOMBERG NEWS
WILKESBORO, N.C. - Lowe's Cos. Inc. said yesterday that same-store sales will miss forecasts this quarter because of lower lumber prices and the cost of converting Eagle Hardware stores into its own stores.
Sales at stores open at least a year will rise at a low single-digit percentage rate in the third quarter ending Oct. 27, less than the 4 percent to 6 percent gain it had expected, Lowe's said. The sluggish sales come as rising interest rates and gasoline prices pushed consumers to slow spending, analysts said.
"I'm concerned that the retail environment is not very healthy at the moment," said David Yucius, a portfolio manager at Randy Seckman & Associates, which owns about 50,000 shares of rival Home Depot Inc.
Sales were hurt as Lowe's converted Eagle Hardware & Garden stores. U.S. lumber prices also have tumbled 36 percent this year, according to the price of futures contracts traded on the Chicago Mercantile Exchange, as production of the building material outpaced construction.
That meant Lowe's, in turn, had to cut the prices it charged customers.
The No. 2 home improvement chain still expects profit to meet the 53-cents-a-share average estimate of analysts surveyed by First Call/Thomson Financial, because it will cut costs. The company earned 44 cents in the third quarter of last year.
Sales are on pace to rise 18 percent compared with the same period a year ago, Lowe's said. Lowe's will reduce expenses and boost its gross margin, which measures the amount of profit made on each sale, by selling less lumber and building materials, said Prudential Securities Inc. analyst Wayne Hood, who rates Lowe's a "strong buy."
Shares of Lowe's fell $1.06, or 2.5 percent, to close at $40.81 on the New York Stock Exchange. The company's stock has tumbled 32 percent this year. Home Depot Inc., the biggest home-improvement chain, fell $2.69, or 5 percent, to close at $51.06, also on the Big Board.
Lowe's has about 100,000 employees and 610 stores in 39 states, said Chris Ahearn, a company spokeswoman. The Eagle stores are in the West, with the greatest concentration in Seattle, she said.
