Lowe's disappoints versus Home Depot

NEW YORK (Reuters) - No. 2 U.S. home improvement chain Lowe's Cos Inc reported weaker same-store sales versus larger rival Home Depot, and issued a lackluster earnings forecast after losing market share in the appliances segment.

Lowe's, which recently laid off about 1,700 middle managers across the United States, expects first-quarter earnings of 34 cents to 38 cents a share, while analysts' average estimate was 38 cents. It expects comparable-store sales to be about flat and operating margin to slide 0.1 to 0.2 percentage point.

The forecast overshadowed higher-than-expected fourth- quarter results at Lowe's and came a day after larger rival Home Depot Inc reported strong quarterly results and raised its profit forecast for the year.

Lowe's said comparable-store sales, or sales at stores open at least a year, rose 1.1 percent in the fourth quarter, while comparable-store sales at Home Depot rose 3.9 percent globally and 4.8 percent in the United States.

"A week ago we believe the market was (anticipating) comps at or below the 1.1 percent put up by Lowe's. However, Home Depot's impressive 4.8 percent U.S. gain yesterday, clearly raised the bar," JPMorgan analyst Christopher Horvers said.

"This represents the widest comp gap in favor of Home Depot since 2000," Horvers added.

Home Depot was very aggressive in promoting appliances in November and December, which allowed the company to take market share in the appliances division, Strasser said.

"Lowe's comp could be construed a disappointment relative to Home Depot (Tuesday), the result predominantly driven by a disparity in appliance sales," Janney Capital Markets analyst David Strasser said. "At Home Depot, that was a key driver of upside to comp, and at Lowe's, we anticipate it was a drag on sales," he said.

He expects sales growth in this category to remain lackluster during at least the first half of 2011, citing woes in the housing market and tough comparisons due to significant stimulus a year ago in the form of cash for appliance clunkers and the housing tax credit.

TROUBLE AT THE TOP?

Some analysts also raised questions about leadership at the smaller chain in the wake of recent changes, including the announcement of the retirement of its chief operating officer, Larry Stone, this spring. The company does not plan to replace Stone.

"Home Depot is simply out-executing and as such merits a higher valuation," Horvers said, adding, "Lowe's recent management turnover and lagging comps are likely to fuel questions surrounding strategic direction."

In January, Goldman Sachs downgraded Lowe's saying the company's management changes could limit upside to its numbers during the transition period.

Net income at Lowe's rose to $285 million, or 21 cents a share in the fourth quarter from $205 million, or 14 cents a share, a year ago. Analysts, on average, were expecting 18 cents a share, according to Thomson Reuters I/B/E/S.

Sales rose 3.1 percent to $10.48 billion, above analysts' average estimate of $10.45 billion.

Lowe's Chief Executive Robert Niblock said in a statement: "While uncertainty in the market remains, the economic recovery is continuing."

Lowe's shares rose 1.4 percent, or about 37 cents, to $26.36 in early New York Stock Exchange trading.

(Reporting by Dhanya Skariachan; additional reporting by Nivedita Bhattacharjee in Bangalore; Editing by John Wallace and Maureen Bavdek)