Home Depot and Lowe's Think Housing Is Heating Up
Nov 26th 2013 8:30PM
Updated Nov 26th 2013 8:32PM
Home Depot and Lowe's released third quarter results and the companies' conference calls gave positive forward guidance on the home improvement industry. Having the two largest home improvement retailers agree and provide positive outlook leaves very little guesswork for investors. Let's take a look at the most notable comments from each company and see just how strong the industry could be over the next 16 months.
Home Improvement giants
Home Depot is the largest home improvement specialty retailer in the world. It currently operates 2,260 locations in the United States, Puerto Rico, U.S. Virgin Islands, Canada, Mexico, and Guam. Lowe's is the second largest home improvement specialty retailer, behind Home Depot, with 1,831 locations in the United States, Canada, and Mexico.
The Depot's comments
Home Depot's conference call was full of praise, as the company blew away earnings expectations; earnings per share grew 28.4% and revenue rose 7.4%, driven by global comparable-store sales rising a very strong 7.4%. Here are some of the most notable comments that give a direct indication to the condition of the home improvement market today and going forward:
"From a geographic perspective, sales were strong across the U.S. All of our U.S. regions posted positive comps in the quarter as did 39 of our top 40 markets." CEO Frank Blake
"The recovery of our pro business continues in the third quarter, our pro business slightly faster pace than our consumer business. In addition to sales from our pro customers, we also track whether we draw an increase number of pros, we household our customer data looking at unique customers and account numbers, and we've seen a steady year-over-year increase in the pro segment." CEO Frank Blake
"All merchandising departments posted positive comps. Kitchens, lighting, décor, lumber, electrical, indoor garden, paint and bath were above the company average. Mower, flooring, plumbing, outdoor garden, building materials, hardware and tools performed positively but were below the company average." Exec. VP Craig Menear
"In the core of the store, maintenance and repair categories saw continued positive comp performance in products like ladders, light bulbs, air circulation, wiring devices, pipes and fittings, fasteners and builder's hardware. We've also strengthened the core with comps above the company average in categories, such as lighting, countertops, floor tile, window coverings, faucets, vanities, fixtures, and special order carpet." Exec. VP Craig Menear
"Housing is a bright spot in our economy. As such, we are forecasting our fourth quarter sales and earnings to be stronger than our plan. So today, we are lifting our 2013 sales and earnings-per-share growth guidance, reflecting our year-to-date performance and our forecast for the fourth quarter." Exec. VP Carol Tome
The third quarter could not have gone much better for Home Depot on the earnings front, and my favorite comment came from Carol Tome when she said, "housing is a bright spot in our economy." The housing market was the darkest of all areas during the recent recession, so hearing that it is "bright" and only getting stronger is crucial to our sustained recovery in the United States.
Lowe's conference call took place the day after Home Depot's and it confirmed the expectations of a strong home improvement environment. Lowe's had reported mixed quarterly earnings, but still showed strong growth year-over-year, so management was not fazed in its conference call; earnings per share increased 34.3% and revenue rose 7.3% year-over-year, as comparable-store sales grew 6.2%. Here are some of the key comments from the call:
"We grew positive comps in 11 of our 12 product categories in the quarter... We also saw strength in all regions of the country, with double-digit comp performance in Florida, as well as particular strength in California and Arizona." -CEO Robert Niblock
"Markets for the housing recovery is well under way. And our ProServices business continued to perform well across the country." -CEO Robert Niblock
"...the home improvement industry is poised for persisting growth in the fourth quarter. As for our year-to-date performance and outlook for the balance of the year, we've raised our fiscal year 2013 guidance. We expect further acceleration of industry growth next year. Stronger job and income growth, improving household financial conditions and the lagging benefit of the recovery in home buying will be key drivers." CEO Robert Niblock
"We performed particularly well in large project categories such as flooring and kitchens and appliances. The strength of these large project categories reflects an emerging willingness among consumers to finally replace items that are worn or outdated or to make significant enhancements to their homes." CCO Gregory Bridgeford
"We also performed well in fashion fixtures and paint, as we were well prepared with the right products and advice to assist customers as they spruced up their interiors in advance of the holidays. We're pleased that our improved performance is enabling us to take advantage of home improvement market growth." CCO Gregory Bridgeford
Lowe's may be the second largest player in the industry, but it is still a very large portion overall. The comment that stuck out the most to me was when Robert Niblock stated, "We expect further acceleration of industry growth next year." Previous comments confirmed Home Depot's expectations of strength for the rest of 2013, but this comment pointed toward a sustained and growing recovery in fiscal 2014.
The Foolish bottom line
Home Depot and Lowe's reported great results, whether or not analysts agree about Lowe's, and both pointed toward a continued recovery in the home improvement industry. There is still much work to be done and growth to be had to get the housing market back to pre-recession highs, but I think we are on the right track. Watch Home Depot and Lowe's closely and consider buying on any significant weakness provided by the market.
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The article Home Depot and Lowe's Think Housing Is Heating Up originally appeared on Fool.com.Joseph Solitro has no position in any stocks mentioned. The Motley Fool recommends Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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