LOWE'S Qtr 2 report, ending August 3rd 2007
by Carole Ripplinger

1. Quarterly results:
 *  Net earnings $1.02 billion, a 9.0 percent increase over the same period a year ago. A better than expected EPS. An 11.7 percent increase, to $ .67 from $ .60 in the 2nd quarter of 2006.
 *  Net earnings for 6 months ending August 3rd, declined 1.0 percent to $1.76 billion while diluted EPS increased 1.8% to $1.15.
 *  Sales for the quarter increased 5.8% to $14.2 billion, up from $13.4 billion in the second quarter of 2006.
 *  Sales for 6 months ending August 3rd, increased 4.1 percent to $26.3 billion.
 *  Comparable store sales for second quarter declined 2.6% and declined 4.4% for the first half of 2007.

2. What has changed since last quarterly report:
 *  Opened 26 new stores during the second quarter. Total square footage increased 11.1% over last year.
 *  Gross margin of 35% was about 80 basis points higher than estimated.
 
3. Factors to consider:
*   Primary risks for Lowe's are a major decline in the housing market and concerns that turbulent credit markets will hurt both home buying and customers ability to finance remodeling projects.           

4. Management Guidance:
 *  Lowes management again lowered expectations for the full year to $1.97 - $2.01.
 *  Management expects conditions to improve as the year progresses. It's picking up market share, thanks to new store openings and also expects to see easier comps "in the back half of the year"
 
5. Changes to the SSG:
 *  I do not recommend any changes to the SSG. Current price 9/07/07 of $29.43 has an upside of 3.4 to 1 with a buy below $31.00. PAR of 13.6% and total return of 17%.          

6. Relevant News and Recommendation:
*  Lowe's is continuing its aggressive store building campaign. On a fundamental basis, the company's financial strength is solid. It has double-digit operating margins, investment grade debt rating, owns 86% of its stores and appears to be gaining market share in many categories. This stock has all four attributes that you look for in a retail stock: ability to boost sales by opening stores, adding new products and taking market share; abiltiy to increase margins through logistics and foreign imports; the ability to generate and deploy cash flow to new stores, dividends and share buy backs; and the potential for multiple expansion.

*  While the shares may not have momentum of other stocks, the ratio of reward to risk is favorable for patient investors

*  Lowes is a BUY, but due to the percentage of our holdings, I recommend a HOLD.