Lowe’s focuses on margin drivers

Mooresville, N.C.-based Lowe’s managed to increase net earnings by 17.4% in the third quarter despite lower-than-expected sales.

During the company’s investor conference call Nov. 15, president and CEO Robert Niblock said that customers “remain cautious and continue to rationalize the scope of their projects, or in many cases delay projects until they have better clarity about their personal financial situations, the value of their homes and the overall macroeconomic outlook.”

Niblock said discretionary spending on home improvement projects is still down, and based on a consumer survey, the majority of that spending is expected to be on projects under $500.

The company reported average customer count was up 1.6%, while the average ticket price remained relatively flat at $61.59. Niblock said the company saw strength in categories supporting small projects, including tools and paint, as well as big-ticket items in seasonal living and appliances.

Niblock said extremely warm temperatures also affected sales in August and September, which delayed consumers’ fall lawn and garden plans and caused sales of live goods to suffer. However, as temperatures cooled in October the company experienced better performance in its lawn and landscape and nursery categories as consumers restored their lawns.

During the conference call, the company revealed some of its strategies in increasing margin on seasonal merchandise.

The company described efforts in seasonal items such as grills, lawn and garden and air conditioning to leverage more market-specific assortments. The company was able to uniformly meet demand and end the season with very little excess inventory, which reduced the margin impact of seasonal markdowns.

Unseasonably warm weather also helped contribute to increased air conditioning sales, reducing the need for end-of-season markdowns.

Plans are under way to increase the company’s private-label offering—from about 15% to 18%—while maintaining that Lowe’s will always be predominantly a house of national brands.

Sales for the quarter increased 1.9% to $11.6 billion, up from $11.4 billion in the third quarter of 2009. Comparable-store sales for the third quarter increased 0.2 percent and for the first nine months of 2010 increased 1.4%. Net earnings incrased 17.4% to $404 million, compared with the third quarter last year.