LOW Lowes Companies Inc

By Paul Ziobro 

The rising housing market isn't boosting Lowe's Cos. as much as rival Home Depot Inc.

Lowe's second-quarter sales growth rose just 2% at existing stores, trailing that of its main rival Home Depot, which on Tuesday said sales rose 4.7% at established stores during the same period. Lowe's weaker performance widened the gap between the two retailers, both of which are betting that improving home values will help to overcome weak shopping trends.

Lowe's Chief Executive Robert Niblock cited several factors for its lagging results. Cooler weather in May hurt demand for lawn and garden business which accounts for a bigger share of Lowe's sales. It also has a smaller professional business than Home Depot, so it's not getting as big a lift from major home renovation projects. Also, the Western part of the U.S., where Lowe's is underpenetrated relative to its bigger rival, also was one of the strongest regions in terms of sales.

The retailer maintained its forecast for sales at existing stores to rise 4% this year. Mr. Niblock said most consumers continue to believe their home values are increasing, which will prompt them to spend more on big-ticket projects.

"We feel good about where the consumer's at from a macro standpoint," Mr. Niblock said in an interview. "They're continuing to invest in their home, continue to see the value of their home increasing."

Share of Lowe's, which cut its earnings guidance for the year to reflect its recently completed acquisition of the Canadian chain Rona, fell 6.9% in recent trading to $75.90.

Lowe's and Home Depot are counting on housing trends to insulate them from malaise across retail. On Wednesday, Target Corp. said sales at existing stores fell for the first time in two years due to what Chief Executive Brian Cornell called a "difficult retail environment." Last week, Kohl's Corp., Macy's Inc. and Nordstrom Inc. all posted drops in sales and challenges getting people into stores.

Home-improvement retailers see their project-based business outpacing smaller purchases. Lowe's said it logged a 2.9% increase in transactions of more than $500 in the second quarter, while transactions of less than $50 were flat. Home Depot also reported a wide gap between big- and small-ticket purchases.

Mr. Niblock said the lack of growth in smaller transactions was mostly due to a decline in the lawn and garden business, rather than from online competitors like Amazon.com Inc. picking off smaller purchases.

In all for the July quarter, Lowe's posted a 3.6% increase in profit to $1.17 billion. The quarter's results were dented by an $84 million loss on a foreign-currency hedge entered into in advance of the company's Rona acquisition. Revenue climbed 5.3% to $18.26 billion.

For 2016, the company now expects earnings of about $4.06 a share, down from previous guidance for $4.11 a share. Total annual sales are expected climb 10%, above analyst estimates for 8% growth.

Anne Steele contributed to this article.

Write to Paul Ziobro at Paul.Ziobro@wsj.com

(END) Dow Jones Newswires

August 17, 2016 12:14 ET (16:14 GMT)

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