(Reuters) - Lowe's Cos Inc (LOW.N) reported weaker-than-expected quarterly sales and earnings and cut its profit outlook for the year as the world's No. 2 home improvement chain lost market share to larger rival Home Depot.
The results on Monday came just days after Home Depot Inc (HD.N) beat Wall Street profit estimates with the help of cost controls and market share gains, and raised its earnings forecast.
Shares of Lowe's fell 5.3 percent to $26.40 in morning trading, while Home Depot dipped 1 percent to $56.17.
"Lowe's is a turnaround story, and it's not turning," said Sanford C. Bernstein & Co analyst Colin McGranahan.
The company has cut jobs, curbed store expansion plans and streamlined its supply chain to cut costs and compete more effectively, but it has yet to see results.
It recently decided to provide fewer discounts on expensive items like appliances, in sync with its bigger plan to offer "everyday low prices" rather than promotions. The move has driven some shoppers away.
"The team is making progress on these initiatives but, frankly, the benefits are accruing at a slower rate than I had expected," Chief Executive Robert Niblock said on a conference call with analysts. "It will likely be mid-2013 before we fully complete this phase of our transformation."
Analysts said other efforts, such as a credit card discount program, had hurt margins more than they had helped sales.
"The biggest disappointment was the margins," McGranahan said. "They lowered some prices, they offered a 5 percent discount on their credit cards, and it doesn't look like they got any traction yet."
Gross margin fell to 33.9 percent in the latest quarter from 34.5 percent a year earlier.
Sales suffered in the traditionally strong second quarter, which ended on August 3, as unseasonably warm weather early in the year pulled some demand into the first quarter.
Sales at Lowe's stores open at least a year fell 0.4 percent, including a 0.2 percent decrease for the U.S. business, the 13th straight quarter that the company trailed Home Depot in same-store sales.
"Lowe's inability to drive sales despite discounting remains a concern," Janney analyst David Strasser said in a research note.
Net earnings fell to $747 million, or 64 cents a share, from $830 million, or 64 cents a share, a year earlier.
Analysts on average had expected 70 cents a share, according to Thomson Reuters I/B/E/S.
Sales fell 2 percent to $14.25 billion, while analysts had expected $14.46 billion.
Mooresville, North Carolina-based Lowe's, which has stores in the United States, Canada and Mexico, now expects flat sales for the fiscal year ending February 1. It forecast earnings of $1.64 a share, down from a May outlook of $1.73 to $1.83.
Last month, the company offered to buy Rona Inc (RON.TO), but the struggling Canadian retailer rejected the proposal.
"First and foremost, an acquisition is not imminent," CEO Niblock said on Monday. "We are evaluating our options ... whether or not we can complete confirmatory due diligence and ensure a fair price and an adequate return on our investment."
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