Lowe's (LOW), the second-largest U.S. home-improvement chain, said fourth-quarter profit rose 6.3 percent as the housing rebound spurred renovation spending. The company also announced a plan to buy back $5 billion in shares.
Net income in the quarter ended Jan. 31 increased to $306 million, or 29 cents a share, from $288 million, or 26 cents, a year earlier, the Mooresville, N.C.-based retailer said Wednesday in a statement. Excluding some items, profit was 31 cents a share, matching the average of 24 analyst estimates compiled by Bloomberg.
Chief Executive Officer Robert Niblock has added workers at Lowe's busiest times to take advantage of a surge in home renovations, fueled by rising property values.
The housing market gains are far from over, Keith Hughes, an analyst at SunTrust Banks (STI) in Atlanta, said in a phone interview before the results were released. Several sectors, including flooring and cabinets, still have plenty of room to grow, said Hughes, who recommends buying Lowe's shares.
Fourth-quarter revenue rose 5.6 percent to $11.7 billion, matching analysts' average estimate.
Profit in the year ending Jan. 30, 2015, will be about $2.60 a share, Lowe's said Wednesday. Analysts projected $2.64, on average.
Lowe's rose 3.9 percent to $50 at 6:29 a.m. in early trading in New York. The shares advanced 34 percent in the 12 months through Tuesday, compared with a 27 percent increase for Home Depot (HD) and a 24 percent gain for the Standard & Poor's 500 Index.
Lowe's also said Wednesday that its board approved the $5 billion share repurchase, which comes in addition to the $1.3 billion remaining on its current authorization.
Home Depot, the largest U.S. home-renovations chain, posted fourth-quarter profit Tuesday that topped analyst estimates, marking six straight years of exceeding or meeting projections. The chain also forecast annual sales growth of 4.8 percent, helped again by the housing the recovery.
Like Home Depot, Lowe's growth strategy has shifted to boosting sales at current stores rather than opening new locations. The one recent exception came last year, when Lowe's bought the majority of Orchard Supply Hardware Stores' assets, including 72 locations, out of bankruptcy for about $205 million. Lowe's said Wednesday it plans to add about 15 home-improvement and five hardware stores in its current fiscal year.
Lowe's has been revamping its product lines to remove items that were less profitable or took longer to sell. Those moves should continue to benefit the company as the economy improves, Hughes said. The chain should receive another boost because it focuses more on premium goods than Home Depot and shoppers often trade up to higher-priced items as consumer confidence increases and incomes rise, he said.
"Lowe's has played at the high end, and Home Depot has played at the low end," Hughes said. "That has helped Home Depot, but that advantage should flip to Lowe's."