Lowe's CEO: Housing, credit crunch dragging on

NEW YORK (CNNMoney.com) -- Lowe's CEO Robert Niblock said Tuesday that he's not yet ready to bet on how long it will take for the housing downturn - which is hurting Lowe's business on a regional basis - to bottom.

"'The only thing that is consistent is the inaccuracies of the economic forecasts," Niblock told a gathering of analysts and investors at the company's annual analyst and investor conference in Charlotte, NC.

'It's important to remember that the housing pressures are having a regional impact on our business," Niblock said. "[But] the credit contraction can impact home improvement customers on a national scale. Therefore the sales environment is challenging as consumers hesitate on larger discretionary projects."

Besides home and credit market woes, Lowe's is also struggling with the fallout of the subprime mortgage meltdown on its consumers, and lumber and plywood price deflation. Falling lumber, plywood prices amid a slowdown in housing activity has hurt both profits and sales for home improvement chains.

Lowe's, the No. 2 home improvement retailer after Home Depot (Charts, Fortune 500), also issued a profit warning ahead of Tuesday's conference. Investors were rattled by the news, sending Lowe's (Charts, Fortune 500) stock down more than 5.5 percent on the New York Stock Exchange.

The company said it now projects fiscal-year earnings at the low-end or slightly below its prior forecast of $1.97 to $2.01 a share, citing lower-than-expected sales trends. Analysts, on average, expect the retailer to log a profit of $1.99 a share for the year, according to Thomson Financial.

Lowe's said drought conditions in the mid-Atlantic, Southeastern and Western regions of the country have hurt performance in its outdoor segment.

Lowe's Chief Financial Officer Robert Hull told analysts that the retailer looked at sales of its indoor and outdoor product categories and found that while sales of indoor products performed as expected, the "pain was in the outdoor categories" in regions where weather was a factor.

"It's clear that since management last spoke in late August, sales trends have deteriorated as housing and weather have taken their toll," Deutsche Bank analyst Michael Baker, wrote in a research note Tuesday. "That said, we note that Wall Street is already at $1.98. So if our $1.95-$1.97 estimation holds, today's announcement, while not good for sure, could have been worse."

For the first-half of 2007, Lowe's revenue is up 4.1 percent to $26.3 billion but sales at its stores open at a least a year, which is a key measure of retail performance, are down 4.4 percent.

"Yes, the current environment is tough, worse than expected, but we are not walking away from the great customer experience that we have established," Hull said. "We are not sacrificing service to save costs."

Executives also provided growth forecasts for 2008 and beyond.

Gregory Bridgeford, Lowe's vice president of business development, said the retailer plans to open between 135 to 145 new stores next year.

He said the retailer would also focus on expanding its market share in the do-it-for-me, or DIFM category, which is growing 9.8 percent annually versus a 6.4 percent growth rate for the do-it-yourself or DIY category.

Lowe's other lucrative market opportunity lies internationally, Bridgeford said. To that end, he said the company will open its first six stores in Canada later this year and between three-to-five new stores in Mexico in 2009.

On a three-year average, Lowe's said sales are expected to increase between 8 to 11 percent each year between 2008 and 2010 and its earnings-per-share are expected to rise between 12 to 15 percent over the three-year period.

While same-store sales are forecast to decline between 2 to 3 percent this year, executives said they see flat same-store sales in 2008 improving to a mid single-digit increase by 2010.

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