Lowe’s (LOW) revealed a 39% jump in fourth-quarter profits on Wednesday, but the No. 2 U.S. home improvement retailer issued a disappointing forecast that dragged down its stock.

The Mooresville, N.C.-based company said it earned $285 million, or 21 cents a share, compared with a profit of $205 million, or 14 cents a share, a year earlier. Analysts had been calling for EPS of 18 cents.

Sales inched up 3.1% to $10.48 billion, narrowly exceeding the Street’s view of $10.45 billion. Same-store sales were up just 1.1%.

“We delivered solid results for the quarter, including earnings that exceeded our guidance,” CEO Robert Niblock said in a statement.

Looking ahead, Lowe’s said it sees first-quarter EPS of 34 cents to 38 cents on a 2% increase in sales. Only the most optimistic end of that range would meet Wall Street’s expectations for EPS of 38 cents.

Lowe’s also forecasted 2011 EPS of $1.60 to $1.72, in-line with consensus calls for $1.66. Same-store sales are expected to rise 1% to 2%.

“While uncertainty in the market remains, the economic recovery is continuing,” Niblock said. “We are committed to delivering better customer experiences and expect to grow market share in 2011 as we make continued progress on our key initiatives.”

Shares of Lowe’s slumped 2.46% to $25.35 ahead of Wednesday’ open, eating into the stock’s slight 2011 gain.

The mixed picture from Lowe’s comes a day after rival Home Depot (HD), the No. 1   U.S. home improvement retailer, released results that beat the Street and raised both its guidance and dividend.

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