Lowe’s Companies Inc. (LOW), the world’s second largest home improvement retailer, recently posted better-than-expected fourth-quarter 2011 results. The quarterly earnings of 29 cents a share beat the Zacks Consensus Estimate of 23 cents and jumped 38.1% from 21 cents earned in the prior-year quarter.

The fourth quarter earnings also exceeded management’s guidance range of 20 cents to 23 cents a share. On a reported basis, including one-time items, the quarterly earnings came in at 26 cents a share, up 23.8% from the year-ago quarter.

Net sales for the quarter climbed 11% to $11,629 million from $10,480 million delivered in the year-ago quarter. Net sales also comfortably surpassed the Zacks Consensus Estimate of $11,334 million. The company had earlier forecast sales to increase approximately 8% during the quarter.

The fourth quarter of 2011 includes an extra week. The 53rd week resulted in incremental sales of about $766 million and earnings of 5 cents a share.

Comparable-store sales during the quarter rose 3.4%. Management had earlier predicted comparable-store sales to remain flat or be up 1% in the quarter. Lowe’s also indicated that comparable-store sales for the U.S. operation jumped 3.5% during the quarter under review.

Despite a 13.3% increase in cost of sales, gross profit jumped 6.8% to $3,979 million; however, gross profit margin shriveled 140 basis points to 34.2% during the quarter.

Stores Update

Lowe’s expects to open 10 new stores during fiscal 2012. As of February 3, 2012, the company operated 1,745 locations in the United States, Canada and Mexico.

Other Financial Aspects

Lowe’s ended fiscal 2011 with cash and cash equivalents of $1,014 million, total long-term debt of $7,627 million, reflecting debt-to-capitalization ratio of 31.6%, and shareholders’ equity of $16,533 million. The company generated about $4,349 million in cash flow from operations during fiscal 2011.

Strolling Through Guidance

Lowe’s said that it now expects fiscal 2012 earnings between $1.75 and $1.85 per share. The current Zacks Consensus Estimate for fiscal 2012 is $1.80.

Management now expects sales to rise in the range of 1% to 2% in fiscal 2012. Compared with a 52-week 2011, sales is expected to climb approximately 3%.

Lowe’s, which faces stiff competition from The Home Depot Inc. (HD), expects comparable-store sales to increase between 1% and 3% during the year.

Let’s Conclude

With the global economic environment still struggling, we believe that spending on big remodeling projects will likely remain under pressure until the housing market stabilizes, inventory levels normalize and consumer-spending rebounds.

Lowe’s recently undertook initiatives such as reformation of its store and merchandising operations to enliven competence, augment operational efficiencies and enrich the shopping experience for customers. All these benefited the company to some or the other extent.

The company also replaced its old tag line “Let’s Build Something Together” with a new one “Never Stop Improving”, thereby reflecting the company’s new brand strategy. We believe that the new tag line would help the company to build a sense a confidence among its consumers.

The new tag line mirrors the company’s endeavor to improve and develop ideas to cater to the constant changing demands and preferences of consumers. Lowe’s also initiated an online tool, “MyLowes”, to aid consumers better manage their homes and other home remodeling projects.

We believe that the “Never Stop Improving” campaign and “MyLowes” will help Lowe’s in gaining a competitive advantage.

Currently, we have a long-term ‘Neutral’ recommendation on the stock. However, Lowe’s holds a Zacks #2 Rank that translates into a short-term ‘Buy’ rating.

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