CEO: 2007 will be challenging for Lowe's
Robert Niblock tells shareholders that housing weakness and higher gas prices will continue to hurt business in the near-term.
NEW YORK (CNNMoney.com) -- The first half of 2007 will be especially challenging for Lowe's business as consumers grapple with record gas prices and a housing slump, CEO Robert Niblock told attendees Friday at the company's annual shareholders meeting.
"2006 was a difficult year for us. We faced higher fuel costs, deflation in lumber prices, difficult year-over-year sales comparisons and a significant slowdown in housing turnover. Many of these [problems] will continue into the first part of 2007," Niblock said at the meeting which was held in Charlotte, North Carolina.
To his point, Lowe's showed the extent of the damage in its recently reported first-quarter results.
The No. 2 home improvement retailer after Home Depot, earlier this month posted a 12 percent drop in profits from last year and a steep 6.3 percent decline in sales at its stores open at least a year, a key measure of retail performance also known as same-store sales.
For its part, Home Depot (Charts, Fortune 500) posted a 30 percent decline in its first-quarter profits. What's more, CEO Frank Blake told Home Deport investors at its shareholder meeting Thursday that "the company expects full-year profits to decline 9 percent."
But Niblock kept up hopes that it wasn't all doom and gloom for home improvement retailers in the months ahead.
"Despite the challenges, we continued to gain market share in the first quarter and we remain confident about the future," Niblock said.
"Long-term demographic trends are favorable," Niblock said. "Plus, increasing real disposable income and a solid employment market provide near-term support. These are favorable signs that consumers can and will continue to spend on needed repairs and maintenance of their homes."
Indeed, the housing downturn has delivered a double whammy to both Lowe's and Home Depot. The slowdown in building activity has hurt sales of building supplies, a key product category for both Lowe's and Home Depot.
Additionally, as home prices drop, fewer people can pull cash from their homes the way they once did to finance big investments like home improvement.
Certainly investors too are feeling the jitters. So far this year, Lowe's stock is up a mediocre 2.9 percent while Home Depot shares are down 3 percent.
For the full-year, Lowe's expects sales will increase about 7 percent, down from its earlier expectations of 10 percent growth.
Lowe's chief operating officer Larry Stone told shareholders that the retailer would continue to invest in improving customer service, its merchandise assortment and the in-store experience as a way to differentiate itself from its competitors and to stimulate consumer spending.
"Customer service is our No. 1 priority," Stone said. "Despite the challenging market, we improved market share in 17 of our 20 product categories. The macro-economic factors are a lingering question in the investment community and have affected the performance of our stock. But some external factors are beyond our control."
Separately, Lowe's shareholders approved a proposal to implement annual elections of directors.
Shareholders rejected proposals to: require minimum share ownership for director nominees; submit certain severance agreements to a shareholder vote; and require bonuses and policy link long-term executive compensation to company performance compared to its peers.
Lowe's also declared a quarterly cash dividend of eight cents a share, a 60 percent increase, payable to shareholders on August 3, 2007.