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Lowe's Nails Down Improved Quarter


But warns that tough times may be ahead.

On Monday, home improvement retailer Lowe's (LOW) disseminated its second-quarter results. In the period ended August 1st, the North Carolina-based company earned $938 million or $0.64 per share.

When compared to the approximately $1.02 billion or $0.67 per share it earned in the same period last year, these numbers may seem disappointing. However, Lowe's EPS number was about $0.08 north of analysts' expectations.

Revenue, spurred by purchases made with stimulus checks, was also up for the first time in 3 quarters, to $14.5 billion - an improvement on the $14.1 billion the Street had been expecting.

Lowe's is now calling for fiscal-year earnings of $1.48 to $1.56 a share, just ahead of the $1.45 to $1.55 a share it previously forecasted. CEO Robert Niblock hopes to outstrip larger competitor Home Depot (HD), by offering superior customer service and newer stores.

But there is some cause for concern: Lowe's comparable store sales dropped 5.3% in the second quarter, as compared with the 2.6% decline it posted in the same period last year.

While it's true that the company raised the earnings bar for the current year, it wasn't by much. Analysts are unlikely to boost their guidance on the strength of these numbers (estimates are currently at $1.50 a share), nor is there anything here to convince fence-sitting institutional players to come on board.

I should also point out that the company's softened third-quarter guidance -- $0.27 to $0.31 per share, as compared with Wall Street's estimate of $0.33 per share -- suggests that difficult times may be ahead.

It makes sense to wait for the second half to play out before considering buying, and possibly to see if the company offers any insight into next year's first quarter.

In short, Lowe's may have beat the consensus number and technically risen the earnings bar, but I'm not about to rush out to buy the stock just now.

Lowe's closed at $24.54, up $0.04 or 0.16%.
No positions in stocks mentioned.

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