Lowe's rebounded in the second quarter after dismal weather cut into projects at home — and into company profits — to start the year. Investors also shrugged off a more guarded outlook as the home-improvement retailer shifts direction under new CEO Marvin Ellison.
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After a premarket selloff, Lowe's shares jumped nearly 8 percent Wednesday and touched a new high, underscoring the market's faith in Ellison. The former J.C. Penney CEO had also been a longtime executive at Lowe's competitor Home Depot.
Lowe's is preparing for a more constrained housing market, as higher mortgage rates combined with steadily rising real estate prices have dampened home sales despite the robust economy and job market. While Americans continue to invest in their homes, Lowe's has long been a laggard to Home Depot and Ellison plans to make it more of a destination.
The company is also closing the 99 Orchard Supply Hardware stores it owns in California, Florida and Oregon so it can focus solely on its core home improvement business.
Ellison told The Associated Press that Lowe's had lost its way and become more interested in things like international expansion and innovation, rather than running a basic home improvement chain. Customer traffic has long been strong, but shoppers have been left disappointed because they haven't found what they needed, he said.
"We have a lot of opportunity," said Ellison, who has met with suppliers and customers and visited stores around the United States.
After thinning executive positions at the company, Ellison began paring away what he sees as nonessential in the aisles of Lowe's. That means rethinking some of the goods it sells, getting rid of lower-selling items, and focusing on the top 2,000 products it carries. Lowe's also wants to bolster its business with professionals, something that has been Home Depot's forte.
Home Depot had handily beaten Wall Street's expectations for the second quarter after — like Lowe's — being handcuffed by foul weather.
Ellison wants sales associates at Lowe's to engage more with shoppers, and is examining tasks that might take time away from serving customers.
Lowe's has a great balance sheet, Ellison said, but noted that it is "going to be fiscally responsible and expense-disciplined." He said that was something he learned at J.C. Penney, which didn't have that financial luxury.
The company is shedding $500 million in planned capital projects this year not directly related to its core business, Ellison said. That money will be used for share buybacks.
For the three months ended Aug. 3, Lowe's earned $1.52 billion, or $1.86 per share. Excluding one-time items, it came to $2.07 per share, 5 cents better than what analysts surveyed by Zacks Investment Research predicted. The Mooresville, North Carolina-based company had earned $1.42 billion, or $1.68 per share, a year earlier.
Revenue rose to $20.89 billion, topping the $20.81 billion that analysts expected.
Sales at stores open at least a year, a key gauge of a retailer's health, climbed 5.2 percent, and 5.3 percent when measuring only U.S. locations, which was in line with expectations.
Lowe's now expects 2018 earnings of $4.50 to $4.60 per share, with revenue up about 4.5 percent. Its prior outlook was for earnings in a range of $5.40 to $5.50 per share, with revenue rising about 5 percent. Analysts polled by FactSet expect earnings of $5.44 per share.
Shares in Lowe's rose $6.92 to $106.66 in Wednesday trading.
Elements of this story were generated by Automated Insights using data from Zacks Investment Research. Access a Zacks stock report on LOW at https://www.zacks.com/ap/LOW