August 22, 2018 / 10:39 AM / 3 months ago

UPDATE 2-Lowe's cuts forecasts on Orchard Supply shutdown

(Adds details on Orchard Supply Hardware, CEO quote; Updates share price)

Aug 22 (Reuters) - Home improvement chain Lowe's Cos Inc trimmed its full-year profit and sales forecasts on Wednesday as it began winding down Orchard Supply Hardware stores and planned to cut down its own inventories in the face of weakening U.S. homebuilding.

The company's shares fell nearly 3 percent to $97.03 in premarket trading as the retailer missed Wall Street estimates for same-store sales in the second quarter.

Lowe's said it would shut all 99 stores of hardware and garden chain Orchard Supply by the end of the fiscal year, leading to between $390 million and $475 million in charges in the second half.

It also said it would seek to cut back on inventory of slow-selling product lines and reinvest in faster-moving goods.

"Exiting Orchard Supply Hardware and rationalizing inventory are the driving force behind the changes to Lowe's business outlook," Chief Executive Marvin Ellison, who took charge in July, said in a statement.

Orchard's 4,000 employees were informed of the permanent shutdown only on Tuesday, according to local media reports.

Orchard, which was spun off by Sears Holdings Corp in 2011, was bought reut.rs/2w3wBvy by Lowe's in 2013 to take advantage of its prime locations in areas such as California, where its bigger rival Home Depot has a strong presence.

But Lowe's has struggled to keep margins up and its same-store sales growth has trailed Home Depot's for many years.

U.S. homebuilding rebounded less than expected from a nine-month low in July, suggesting the housing market was likely to tread water for the rest of this year against the backdrop of rising construction costs and labor shortages.

The No.2 U.S. home improvement store said it expected sales to grow about 4.5 percent for fiscal 2018 and sales at stores open at least a year about 3 percent, below the company's previous target.

It also cut its full-year profit forecast by 90 cents to $4.50-$4.60 per share.

In the second quarter, same-store sales rose 5.2 percent but missed the average analyst estimate of a 5.34 percent increase, according to Thomson Reuters I/B/E/S.

Last week, Home Depot's results topped estimates as it benefited from a rebound in demand for seasonal products.

Lowe's net income rose 7 percent to $1.52 billion in the second quarter. Excluding one-time items, the company earned $2.07 per share, topping estimates of $2.02. Net sales rose 7 percent to $20.89 billion, beating expectations.

Lowe's also named David Denton as its new chief financial officer. Denton, currently CFO of CVS Health, will join in the second half of 2018. (Reporting by Aishwarya Venugopal in Bengaluru; Editing by Anil D'Silva and Arun Koyyur)

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