(Reuters) - Lowe’s Cos Inc LOW.N followed larger rival Home Depot Inc HD.N in reporting better-than-expected quarterly sales as strength in the U.S. housing market and favorable weather powered demand for building and home renovation products.
Shares of the home improvement chain, which also raised its profit forecast for the year ending Feb. 3, rose as much as 4 percent to a record high of $79.08, boosting the company’s market value by about $2.5 billion.
In contrast, Home Depot’s shares fell as much as 3 percent after reporting results on Tuesday, as investors viewed the stock as fairly valued following a more than 19 percent gain in the 12 months to Monday’s close. Lowe’s stock rose only 5 percent in the period.
Investors had been relatively negative on Lowe’s stock prior to the earnings and the stock was “cheap” compared to the past three years, J.P. Morgan analyst Christopher Horvers wrote.
The outlook for the home-improvement industry remained positive for the rest of the year as gains in the job market and disposable income drive consumer spending, Chief Executive Robert Niblock said on a conference call on Wednesday.
U.S. housing starts rose a stronger-than-expected 6.6 percent in April, data showed on Tuesday.
Rising home prices were also encouraging consumers to invest in their houses, Niblock added.
“The home improvement industry once again shows its resilient nature in an increasingly more difficult environment for retailers,” Horvers wrote.
Retailers such as Macy’s Inc M.N and Target Corp TGT.N reported quarterly sales that missed Wall Street’s estimates as consumer spending shifts away from apparel and accessories to big-ticket items including cars and homes.
Separately, New York’s Attorney General Eric Schneiderman reached a settlement with Lowe’s and Home Depot over alleged violations of a 2010 state law designed to reduce water pollution.
The attorney general alleged that 90 percent of Home Depot and Lowe’s stores in New York violated the law by displaying phosphorus-containing lawn fertilizers without the required signage or failing to separate phosphorus-containing fertilizers from those without it.
Lowe’s agreed to pay $52,000 and Home Depot $78,000 in fines.
Lowe’s told Reuters that most of its fertilizers did not contain phosphorous and that its signage complied with the law. The company, however, agreed to settle to avoid lengthy litigation.
Lowe’s raised its full-year profit forecast to about $4.11 per share from about $4.00.
The company’s same-store sales rose 7.3 percent in the first quarter, handily beating the 4.3 percent increase expected by analysts polled by research firm Consensus Metrix.
The jump also outpaced the 6.5 percent rise reported by Home Depot, only the second time Lowe’s has outpaced its rival in nearly seven years.
The rise in Lowe’s same-store sales increase also handily beat the 4.3 percent increase expected by analysts polled by research firm Consensus Metrix.
Mild weather in February helped drive outdoor construction projects, boosting demand for lumber, building materials and millwork, the company said.
Excluding items, Lowe’s earned 87 cents per share, beating the average analyst estimate of 85 cents, according to Thomson Reuters I/B/E/S.
Net sales rose 7.8 percent to $15.23 billion, above analysts’ average estimate of $14.87 billion.
Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Maju Samuel and Sriraj Kalluvila