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Lowe’s Companies Inc. (LOW - Analyst Report), the world’s second-largest home improvement retailer, recently posted second-quarter 2012 earnings of 68 cents per share, missing the Zacks Consensus Estimate by a couple of cents.

Including a charge of 1 cent related to reduction in headcounts and a negative impact of 3 cents related to a shift in comparable weeks, the quarterly earnings came in at 64 cents per share, or flat with the year-ago quarter.

Lowe’s trimmed its outlook, as it remains concerned about the housing market and the sluggish economic recovery.

Net sales for the quarter dropped 2% to $14,249 million from $14,543 million delivered in the year-ago quarter. A shift in the comparable week resulted in $259 million or 1.8% of the decline in sales. Analysts polled by Zacks had expected revenue of $14,421 million.

Comparable-store sales slipped 0.4%. Lowe’s also indicated that comparable-store sales for the U.S. operation edged down 0.2%.

Despite a 1.2% decline in cost of sales, gross profit fell 3.6% to $4,834 million, whereas, gross profit margin shriveled 60 basis points to 33.9% from the prior-year period.

Stores Update

Lowe’s expects to open 10 new stores during fiscal 2012. As of August 3, 2012, the company operated 1,748 locations in the United States, Canada and Mexico.

Other Financial Aspects

Lowe’s ended the quarter with cash and cash equivalents of $1,710 million, total long-term debt of $9,602 million, a debt-to-capitalization ratio of 39.3%, and shareholders’ equity of $14,824 million. The company generated about $2,796 million in cash flow from operations during the first half of fiscal 2012.

During the quarter, the company bought back 36.8 million shares, aggregating approximately $1 billion and paid a dividend of $166 million. In the first half of fiscal 2012, the company bought back 94.7 million shares totaling approximately $2.75 billion and paid a dividend of $340 million.

Strolling Through Guidance

Lowe’s now expects fiscal 2012 earnings of $1.64, down from a range of $1.73 to $1.83 per share forecasted earlier. The current Zacks Consensus Estimate for fiscal 2012 is $1.79. Consequently, we could witness  acorrection in the Zacks Consensus Estimates in the coming days, as analysts revise their estimates to better align with management’s guidance range.

Management now projects total sales for fiscal 2012 (52-week) to remain even with fiscal 2011 (53-week). Compared with a 52-week 2011, sales are expected to climb approximately 1%. Earlier, Lowe’s had forecasted total sales growth of 1% to 2% for fiscal 2012 (52-week) compared with fiscal 2011 (53-week). Compared with a 52-week 2011, management had previously expected sales to jump approximately 3%.

Lowe’s, which faces stiff competition from The Home Depot Inc. (HD - Analyst Report), now expects marginal growth of 0.5% in comparable-store sales, down from an increase of 1% to 3%, forecasted earlier.

Lowe’s is struggling against Home Depot, which recently posted better-than-expected second-quarter 2012 results. The quarterly earnings of $1.01 per share rose 17.4% from the prior-year period on the back of comparable-sales growth and strong operating performance. Moreover, earnings also surpassed the Zacks Consensus Estimate of 97 cents a share. Management now projects fiscal 2012 earnings to be $2.95 per share up from $2.90 forecasted earlier.

Let’s Conclude

With the global economic environment still not completely out of the woods, we believe that spending on big remodeling projects will likely remain under pressure until the housing market stabilizes, inventory levels normalize and consumer-spending rebounds.

However, Lowe’s had undertaken initiatives such as reformation of its store and merchandising operations to enliven competence, augment operational efficiencies and enrich the shopping experience for customers.

The company also replaced its old tag line “Let’s Build Something Together” with a new one “Never Stop Improving”, thereby reflecting the company’s new brand strategy. We believe that the new tag line would help the company to build a sense a confidence among its consumers.

Currently, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, Lowe’s holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.

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