Nation’s biggest home retailers respond to rough climate: Lowe’s to focus on expenses, service

Lowe’s is reducing its 2008 expansion plans by about 20 stores, down to 120, in a reaction to the rough housing market.

“Most of these 20 stores were planed for high markets like California and Florida where current conditions suggest sales may fall short of original forecast,” said president and COO Larry Stone during the company’s fourth-quarter earnings conference call. “We know these markets will recover and we’ll be ready to add stores when the time is right. We want to delay some of them until conditions improve,” he added.

Year-end earnings were down 9.5% to $2.81 billion.

Year-end sales were up 2.9% To $48.3 billion.

Comp- store sales were down 5.1% for the year.

153 new stores were opened in 2007.

That reduction in growth plans was one of the company’s responses to what CEO Robert Niblock described as “a challenging sales environment.” The company saw earnings fall 33.4 percent to $408 million in the quarter. Sales were down 0.3 percent to $10.38 billion.

Niblock said the fourth quarter fell short of the company’s financial plans. “Our original plan for 2007 proved to be too optimistic,” he said. Key challenges come from an unprecedented decline in housing turn over and falling home prices, he said.

For the full year, earnings were down 9.5 percent to $2.81 billion compared with $3.1 billion last year. Year-over-year sales rose 2.9 percent to $48.3 billion from $46.93 billion in 2006.

But while Niblock said he expects further turbulence in 2008 and predicts sales will remain soft, he believes that the headwinds will lessen in light of the federal government’s recent economic stimulus package and that the federal rate cuts “should aid in stabilizing many of the factors that pressured sales in 2007.”

“We remain focused on what we can control,” he said, namely customer service initiatives and managing expenses. He also credited interest rate cuts and the impending economic stimulus initiative by the federal government for helping improve the home improvement retail outlook.

“As a result [of those initiatives] many of the headwinds facing the housing market and the home improvement industry should lessen, and consumers’ confidence in investing in and improving their homes should improve,” he predicted.

Stone added that existing store improvement plans would also be curtailed.

“Our commitment to reinvest in our existing store base remains strong, but we have decided to pull back on what we call major remerchandising projects in 2008,” he said.

Comparable-store sales dropped 7.6 percent in the fourth quarter and dropped 5.1 percent for the full year. The company reported positive comps in only two categories for the quarter—rough plumbing and lawn and landscape products. Stone attributes the growth in plumbing to successful clean air and water filtration programs as well as inflation in raw materials for the pipe category. For lawn and landscape, Stone attributed the positive comps to snow related products such as ice melt and snow shovels.

Highlighting some good news: Lowe’s pointed to 25 stores that posted double-digit sales gains over last year. The company reported positive sales comparisons in 314 stores.

Lowe’s expressed optimism in the appliance category, which will be bolstered by the Electrolux brand. Lowe’s described the company as the leading European appliance brand for more than 70 years.

On the international front, the company said its seven new stores in the greater Toronto area have received a warm welcome. “While it’s obviously early, we are extremely pleased with the sales trends in our (Canadian) stores,” Stone said. The company has a long-term goal of 100 stores across Canada and plans to move into the Mexican market in 2009.

The company built approximately 153 stores in 2007, topping out in the fourth quarter with 72 new locations, including seven in the greater Toronto area.