August 21, 2019 / 4:49 PM / 3 months ago

Lowe's shares jump as higher-spending customers drive profit beat

(Reuters) - Lowe’s Cos Inc (LOW.N) shares surged over 11% on Wednesday as the home improvement chain’s efforts to focus on higher-spending customers helped it beat quarterly profit estimates and gain ground on larger rival Home Depot Inc (HD.N).

FILE PHOTO: An employee stands outside a Lowe's home improvement chain in Austin, Texas, U.S., February 27, 2017. REUTERS/Mohammad Khursheed

Like Home Depot, Lowe’s has been chasing plumbers, builders and carpenters who spend more than its core “do-it-yourself” shoppers, by stocking up on higher-end industrial products such as drills and power saws.

Home Depot also beat quarterly profit estimates on Tuesday buoyed by sales of big-ticket items, but warned that the U.S.-China trade drama would impact consumer demand and cut its full-year sales forecast.

Lowe’s said the potential impact of U.S. tariffs on some Chinese imports set to take effect from Sept. 1 was baked in its full-year earnings forecast of $5.45 to $5.65 per share, which the company reaffirmed on Wednesday.

Lowe’s has also modified certain sections in stores dedicating them specifically to higher-spending customers with staff, billing and parking facilities. Changes in its supply-chain and a new merchandising team have helped keep in-demand products in stock for longer.

Lowe’s total average bill amount rose 3.2% to $77.97 in the quarter.

“Under Ellison, retail basics such as in-stocks, merchandising and customer service are all being improved,” Neil Saunders, managing director of GlobalData Retail said.

Marvin Ellison, who was the chief executive officer of J.C. Penney Co Inc (JCP.N) before taking the top job at Lowe’s last year, has made these changes with his sights squarely set on closing the gap with Home Depot, the United States’ largest home improvement chain.

Lowe’s same-store sales growth outpaced Home Depot in the country for the second straight quarter, something that helped push the company’s shares higher, according to Stifel analyst John Baugh.

For an interactive graphic on Lowe's U.S. same-store sales compared to Home Depot over the last three years, click here: (tmsnrt.rs/2Z7N02W)

However, Lowe’s overall quarterly net sales of $20.99 billion, hurt by a drop in revenue from Canadian stores, was still about $10 billion shy of Home Depot’s figure.

Lowe’s executives added rising home prices were leading consumers to spend on renovations and upgrades to their existing homes, rather than investing in new properties, benefiting home improvement chains.

The company’s same-store sale rose 2.3% in the second quarter ended Aug. 2, above expectations of a 1.8% increase, according to IBES data from Refinitiv.

Excluding items, the company earned $2.15 per share, beating estimates of $2.01.

Reporting by Uday Sampath in Bengaluru; Editing by Shounak Dasgupta

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