Lowe's (NYSE:LOW) reported bleak fourth quarter earnings on February 20, which include a net income drop to $162 million, or 11 cents per share, down from $408 million, or 28 cents per share, the previous year. Sales were off nearly 4%, to $9.98 billion, while same store sales dropped nearly 10%. Annual revenue was off from $48.7 billion down to $48.2 billion - the first time in the company's history that it had lower year-over-year sales. The guidance provided by the home improvement retailer for 2009 was not encouraging, either.

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Where Are The Customers?
Lowe's specializes in retail products for do-it-yourself customers and products and services for commercial business customers in the home improvement space. The collapse of the housing industry greatly affected the mortgage and credit industries, which had a direct impact on new home construction and, finally, the home improvement business. As with other companies, Lowe's has scaled back expansion plans and will embark upon the nasty endeavor of cutting jobs and reducing costs in order to weather the recession. The stock price has reached a 52-week low, closing in the $15 range - off significantly from the $28.49 high set on September 8, 2008.

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Bleak, But Not Hopeless
Lowe's, along with the other retail giant Home Depot (NYSE:HD), make up roughly 40% of the more than $350 billion home improvement industry. As a result, both companies have taken the greatest hit from the recession-weary consumer. Home Depot, which is due to report earnings this week, is also seeing shrinking profits as consumers pull back. However, some home improvement retailers are experiencing better fortunes, despite the difficult economy. Beacon Roofing Supply(Nasdaq:BECN), a small roofing distributor and supplier, tripled its profits in the recent quarter. Although its gains were helped by the surge in business in the aftermath of Hurricane Ike, Beacon Roofing is finding enough business to stay profitable in a harsh economy.

Lumber Liquidators (NYSE:LL), a maker of hardwood flooring, also has clawed its way to profits and appears to be staving off recession-induced disaster. Thus far, its specialty niche hasn't succumbed to the downward pressure facing the industry
overall. Large, multi-retailer, Sears (Nasdaq: SHLD), on the other hand - which sells tools, appliances and home improvement goods, has felt the pressure. However, because this sector is not suffering as badly as housing, auto or banking industries, in today's curious logic on the economy, the home improvement arena has not completely fallen apart. (Learn how housing statistics can be used to pick stocks in Economic Indicators: Housing Starts and Economic Indicators: Existing Home Sales.)


Hope On The Horizon?
Lowe's Chairman and CEO Robert Niblock, in comments about the economy, expressed hope that the government would take action to restore stability in the housing market and faith in the economy. With concrete actions, including economic stimulus, tax credits and programs to address the housing industry, Niblock expressed hope that the housing sector would bottom out and, therefore, start to improve. He also made the key point that the economy would have to avoid another major financial crisis and that there had to be improvements on the job front. These, of course, are issues that impact any company or stock. Yet, for any housing-related industry, this will be crucial for improvement going forward.

The Lowdown On Lowe's Going Forward
While Lowe's has seen its profits and sales drop off, the company remains profitable and has solid fundamentals. Therefore, it should be able to compete well against Home Depot in the home improvement space and be ready to advance again in profitability when the economy recovers. But nobody can predict how long this will take. And, because the stock market is going to need an extreme home makeover itself, investors may have to wait quite a while for a payoff. (Find out how to evaluate companies in Fundamental Analysis For Traders.)