Lowe's Sets Strategy for Slowing Housing Marke

Lansdowne, VA, September 27, 2006--Lowe's, which warned on its full-year results earlier this week, expects it could take as long as 12 to 18 months for the slowdown in the housing market to stabilize, according to CNNMoney. The company warned that its full-year 2006 profits would be at or near the low end of its previous forecast. During the company's annual analysts' meeting, Lowe's executive vice president of business development Greg Bridgeford cited consumer income, employment and housing turnover as the three key drivers for the $720 billion home improvement industry. Housing turnover is down 13 percent this year, he said. That, in turn, has negatively impacted mortgage refinance activity, which thus far has helped fuel overall consumer spending. Even though income and employment growth is still relatively stable, Bridgeford said Lowe's will be challenged to grow its market share in a slowing economic environment, particularly in the housing "bubble markets" on the West and East coasts. "We're seeing conflicting external forces. The process of correction could take over a year to 18 months. The key for us is for moderation in home pricing to occur between now and the next 18 months," Bridgeford said, adding that he anticipates a pick-up in the second-half of 2007. The company said current sales were running below its prior expectations. Still, it expects to deliver per-share earnings at or near the low end of a range of $2 to $2.07. Analysts currently expect profit of $2.01 a share for the full year, according to First Call. The retailer said it expects earnings per share earnings to rise between 10 to 14 percent for 2007 and between 12 to 16 percent in 2008. For the 2007 fiscal year, analysts expect $2.23 a share, which would represent a rise of about 11 percent over expected 2006 profit. "Deceleration in home improvement sales in the wake of deceleration in housing turns is completely consistent with historical patterns," Goldman Sachs analyst Matthew Fassler, wrote in a research report Tuesday. "[Lowe's] management's earnings guidance in the midst of flagging sales is credible," he added. Despite the cautious outlook, shares of Lowe's (Charts) and rival Home Depot (Charts) were higher Tuesday. Incentives for consumers and employees Retail analysts have cautioned that a slowing housing market coupled with gas price inflation would likely hurt home improvement retailers and consumer spending overall. Home Depot recently cited those trends as ongoing "challenges" in the coming months. The retailer last month also warned on its full-year results. Given the backdrop of declining housing turnover, higher energy costs and difficult sales and comparisons for Lowe's versus the last two years, the company outlined strategies to boost its current sales and customer traffic trends. For instance, the retailer plans to aggressively advertise its new line of energy-efficiency, moderately-priced home appliances. Nick Canter, Lowe's executive vice president for store operations, provided details during the call about efforts to enhance customer service. Among them, Lowe's recently implemented a "mystery shopper" program to provide feedback on shopping patterns and staff behavior to customers. Lowe's will offer incentives, such as free cars and trucks and $1,000 annual bonuses to employees of high-performing stores. As home sales soften, Lowe's management expects consumers will shift their focus to home repair and maintenance, thereby continuing to spur its business. To that end, the company is investing in growing its more profitable "do-it-for-me" business. In addition to flooring, the company said it will expand services to include roofing, fencing, window and siding installments. Lowe's estimates the DIFM market represents a $150 billion opportunity. DIFM sales currently account for 20 percent of its annual sales and have been growing faster than total sales.

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