Home Depot, Lowe's Report Strong Fis. Q3 Sales, Earnings

Continued consumer interest in products for their homes in an otherwise uncertain economic environment helped home improvement chains Home Depot and Lowe's Companies register strong third quarter sales and earnings.

The Home Depot credited sales of major appliances, among other products, with pushing up the average purchase. At the same time, sales of big-ticket items, such as majaps, helped boost net income in the Atlanta-based chain's fiscal third quarter by nearly 21 percent, to $940 million, up from $778 million in the year-ago period.

"Throughout the quarter, we saw customers respond to great values in areas like appliances, flooring and power tools, supporting growth in our average ticket," said Bob Nardelli, chairman/CEO.

Home Depot sales in the third quarter, ended Nov. 3, climbed 9 percent, reaching $14.5 billion, up from $13.3 billion in the same three months in 2001.

Sales jumped 17.6 percent in Lowe's fiscal third quarter, hitting $6.4 billion, up from $5.5 billion in the year-ago period. Comp-store sales for the three months climbed 4.1 percent.

Pumped by its expansion into major metropolitan markets, Wilkesboro, N.C.-based Lowe's reported net earnings of $339.2 million in the third quarter, ended Nov. 1, a 35.4 percent increase over the same period a year ago, when the retailer registered net earnings of $250.5 million.

However, Hope Depot comp-store sales dropped 2 percent in the three months, due mainly to a sluggish retail environment, lower lumber prices and an aggressive rollout of new products that tended to disrupt customer traffic.

"The current retail environment, coupled with merchandising changes and resets within our stores, affected customer traffic," Nardelli said. This past summer, Home Depot had forecast a 2 percent to 4 percent comp-store increase.

Home Depot also said its strategy to locate several stores in one market hurt sales during the third quarter. But the chain defended the move, saying multiple units in a single marketplace help the retailer achieve market dominance.

In the fourth quarter, the retailer expects same-store sales to decrease 3 percent to 5 percent. This compares with a 5 percent comp-store increase in the fourth quarter of 2001.

Gross margin in the three months at Lowe's increased 140 basis points, to 30.6 percent, up from 29.2 percent in the same period in 2001. At the same time, Selling, General and Administrative (SG&A) expenses climbed 80 basis points, to 18.6 percent, up from 17.8 percent.

Lowe's expects total sales to increase 16 percent to 17 percent in its fiscal fourth quarter, compared with the same period in 2001. The retailer anticipates a comp-store sales increase of 2 percent to 4 percent during the three months.

Gross margin is anticipated to improve 50 to 60 basis points during the fourth quarter, with SG&A expense de-leverage of 10 to 20 basis points.

For the year, the retailer anticipates a sales increase of about 20 percent year-over year, with store comps increasing about 5 percent. Gross margin is expected to improve about 120 basis points.