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Lowe's warns of margin pressure in Q2 on muted home improvement demand

A Lowe's retail store is shown in Carlsbad, California

By Granth Vanaik

(Reuters) -Lowe's on Tuesday warned of operating margin pressure in the current quarter as the home improvement chain expects to see muted demand, overshadowing its smaller-than-expected drop in quarterly same-store sales.

Shares of the company were down as much as 3% after executives said that they expect current-quarter comparable sales decline to be in line with the first quarter.

Same-store sales at Lowe's fell 4.1% in the first quarter, compared to estimates of a 5.65% decline.

"We continue to expect second-half comparable sales to improve ... This is not because we are forecasting an improvement in demand trends this year," CFO Brandon Sink said, adding that the improvement would be due to easier comparisons from last year.

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While customers have been willing to undertake smaller repair works, they have largely been tight-fisted with their spending on expensive renovations, hurting sales at home improvement retailers like Lowe's.

Rival Home Depot last week also reported a steeper- than-anticipated fall in same-store sales but reaffirmed its annual targets in hope of a demand recovery in the second half of the year.

Lowe's said it saw do-it-yourself (DIY) customers under pressure in categories such as home decor, even as its pro-customers, which include professional builders, contractors and handymen, drove positive sales after it invested in improving product assortment across stores.

DIY contributes about 75% to Lowe's revenue, while the pro business accounts for 25%.

"Lowe's did manage to outperform analyst's expectations, but their trend is certainly slowing over the long term," said Brian Mulberry, client portfolio manager at Zacks Investment Management.

Lowe's, which reaffirmed its annual sales and profit targets, earned $3.06 per share for the quarter ended May 3. Analysts had expected a profit of $2.94, according to LSEG data.

(Reporting by Granth Vanaik in Bengaluru; Editing by Maju Samuel)