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February 27, 2008

Lowe’s: When Sales Go Down, our Share Price Goes Up!

Lowe’s Companies, Inc. the second largest US home improvement chain, announced a sharp fall in 4th quarter profits. Larry Stone, its veteran CFO, said the retailer would adopt a conservative approach to the year ahead.

Mr Stone added that the retailer, which operates 1,525 stores across the US, has postponed plans to open another 20 stores in Florida and California – both markets were classified as “high-growth”! But to most of us, Florida and California are best known as the markets who triggered and suffered the most by the housing slump.

However, Robert Niblock, CEO, said stores were experiencing falling sales even in regions that were not affected by house price declines. Same-store sales fell 7.6% during the quarter.

For the current fiscal year, the US-based home improvement chain has predicted a 5%-6% fall in same store sales, and a 3% increase in total sales. Last quarter earnings were $408 million (U.S.), or 28 cents per share, which is down 33 per cent from $613 million, or 40 cents a share, a year earlier.

Despite the lower interest rates and the benefits from the federal tax stimulus package, Lowe’s is determined to cut down on expenses, cancelling about a third of planned major store remodelling projects, and staffing more conservatively in the spring…

“The conservative guidance marks a progression for (Lowe’s) management, which had been persistently optimistic,” Sanford Bernstein analyst Colin McGranahan said in a research note.

Investors must agree, as Lowe’s shares rose 3.9% and now stand at about $24.50 in NYSE.

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