Lowe's forecasts strong sales growth this year, shares soar

By Gayathree Ganesan

(Reuters) - Lowe's Cos Inc (LOW.N) forecast 2017 sales that topped estimates and reported better-than-expected quarterly comparable sales and profit, helped by a robust housing market that encouraged Americans to spruce up their homes or buy new ones.

Shares of the No. 2 U.S. home improvement retailer rose as much as 11.4 percent to $82.85 on Wednesday, their biggest intraday percentage gain in more than eight years.

Homebuilding in the United States jumped 11.3 percent in December as a firming economy and higher wages boosted demand for housing.

"Lowe's has generated growth in its core, underlying business, and has done so at a pace that is well above the previous two quarters," GlobalData retail analyst Hakon Helgesen wrote in a client note.

The company reported a better-than-expected 5.1 percent rise in comparable sales in the fourth quarter - a strong rise after posting sales of 2.7 percent in the third quarter and 2 percent in the second quarter.

Improvements in customer service, which include providing an enhanced level of advice for bigger projects, helped Lowe's attract and convert more DIY customers and first-time homeowners, Helgesen added.

"When you look at our 2017 guidance, we expect that our growth in sales will be driven by a continued increase in average ticket and a continued increase in transactions," Chief Executive Officer Robert Niblock told Reuters.

Total customer transactions rose 15.1 percent, while average spending by Lowe's customers increased 3.6 percent in the latest quarter, which ended Feb. 3.

Lowe's also forecast 2017 sales of $68.27 billion and adjusted earnings of $4.64 per share, beating analysts' estimates, according to Thomson Reuters I/B/E/S.

Net sales rose 19.3 percent to $15.78 billion in the latest quarter, helped by its acquisition of Canada-based Rona Inc (RON.TO) in May. Analysts on average expected $15.39 billion.

Excluding items, the company earned 86 cents per share, beating analysts' average estimate of 79 cents.

LOWE'S VS. HOME DEPOT

Lowe's same-store sales performance has lagged Home Depot Inc (HD.N) in the past several quarters, mainly due to its focus on do-it-yourself (DIY) customers, who spend less on big-ticket items compared with professionals.

Home Depot, which gets about 40 percent of its revenue from professionals, reported a stronger-than-expected 5.8 percent rise in holiday-quarter comparable-store sales last month.

In contrast, Mooresville, North Carolina-based Lowe's gets only a third of its total sales from professional customers.

Lowe's said it expects comparable-store sales to rise 3.5 percent in 2017, while Home Depot forecast an increase of 4.6 percent.

(Reporting by Gayathree Ganesan in Bengaluru; Editing by Sriraj Kalluvila and Martina D'couto)