Lowe's on Wednesday reported lower-than-expected quarterly earnings and warned of slower growth in profit margins, as it spends more on marketing to boost sales in a robust home improvement market.
Shares of Lowe's, the No.2 U.S. home improvement retailer, dipped more than 5 percent to $71.78 in premarket trading.
The retailer now expects operating margin to rise 80 to 100 basis points in the year ending Feb. 2, down from an earlier forecast for a 120-basis-point increase.
In addition to marketing, Lowe's will incur more costs related to longer employee shifts in stores as it seeks to improve customer experience and drive sales.
"We believe this is the right strategy to more fully capitalize on strong traffic trends in what we believe is a supportive macroeconomic backdrop for home improvement," Lowe's Chief Executive Robert Niblock said.
The U.S. housing market has been facing supply constraints, which has pushed prices up and encouraged homeowners to remodel their homes rather than buy a new house.
Lowe's larger rival Home Depot last week noted that its better-than-expected quarterly results were driven by higher consumer spending on home improvement products.
Mooresville, North Carolina-based Lowe's net income rose 21.4 percent to $1.42 billion or $1.68 per share in the second quarter ended Aug. 4.
Excluding one-time items, the company earned $1.57 per share, missing analysts' average estimate of $1.61, according to Thomson Reuters I/B/E/S.
Net sales climbed 6.8 percent to $19.50 billion. Analysts had expected $19.53 billion.
Sales at Lowe's stores open for more than a year rose 4.5 percent, edging past the 4.3 percent expected by analysts on average, according to research firm Consensus Metrix.
(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Sai Sachin Ravikumar)