After a week of dismal earnings from department stores, home improvement companies are proving to be the silver lining of the retail industry. Both Home Depot and Mooresville-based Lowe’s reported better-than-expected financial results this week as they enter what they consider their own Christmastime – the spring season.
Lowe’s, the second-biggest home improvement retailer in the U.S., and its bigger rival Home Depot are benefiting from a warmer-than-expected winter and continued strengthening in the U.S. housing market at a time when traditional retailers struggle against e-commerce and changing consumer preferences.
“Home improvement retail is very much a bright spot in an otherwise weakish consumer environment. Clearly shoppers are choosing to shop the home improvement channel versus other areas of retail,” Brian Nagel, senior equity research analyst at Oppenheimer & Co., said on CNBC’s SquawkBox Wednesday morning.
Lowe’s has long been trying to close the gap between itself and its Atlanta-based rival, and on Wednesday, Lowe’s reported that same-store sales – sales at stores open for at least one year, a key metric for investors – rose more than Home Depot’s for its U.S. business.
In a statement, Lowe’s said first-quarter earnings were $884 million, up 31 percent from a year ago. Excluding some items, earnings for the first quarter were 87 cents a share, topping estimates from Bloomberg-surveyed analysts by 2 cents.
Lowe’s said total sales were $15.2 billion, above the $14.9 billion analysts had estimated and up from $14.1 billion during the same quarter last year.
Home Depot said its first-quarter sales totaled $22.8 billion, up from $20.9 billion a year ago, and better than the $22.3 billion analysts expected.
Lowe’s said same-store sales rose 7.3 percent from the same quarter a year ago, topping analysts’ 4.3 percent prediction. For the U.S. business, same-store sales rose 7.5 percent, Lowe’s said.
Home Depot reported Tuesday that its U.S. same-store sales rose 7.4 percent, and 6.5 percent for the entire company. The retailers’ earnings also were up from the same quarter last year and rose more than analysts had expected.
Home Depot reported earnings of $1.8 billion for the first quarter, or $1.44 per share, easily surpassing per-share projections of $1.33 that Wall Street analysts had called for. It also topped last year’s quarterly profit of $1.6 billion, or $1.21 per share.
Recent data suggest that the U.S. housing market continues to show gains, giving Americans the confidence to invest in home improvement projects.
Home values are continuing to rise – the Standard & Poor’s/Case-Shiller 20-city home price index rose 5.4 percent in its most recent report. And builders ramped up construction of new homes in April, as housing starts climbed 6.6 percent to a seasonally adjusted annual rate of 1.17 million units, the U.S. Commerce Department reported Tuesday.
“As the market for housing continues to do well, you’re going to see the market for home improvement do well,” said Steven Cox, a marketing professor with Queens University of Charlotte.
In an interview with the Observer Wednesday, Lowe’s CEO Robert Niblock said millennials represent a “great opportunity” for the retailer since they have been renting for so long but have said in recent surveys that they wish to own their own home one day.
First-quarter earnings haven’t been as strong across all of the retail sector, however.
A handful of department store chains kicked off retail earnings season last week with disappointing results. Macy’s, for example, reported its worst quarterly sales since the recession. Nordstom’s said sales at stores open at least a year fell for the first time in almost seven years. And J.C. Penney on Friday also reported a surprise drop in first-quarter sales.
Online shopping is one major reason shoppers are shying away from stores. Experts say home improvement retailers aren’t exactly immune to the “Amazon effect,” but given the nature of their products, they are much more isolated from it than traditional retailers are.
“It’s hard to order fertilizer and other home improvement products online. In general, they’re either bulky, so they don’t make sense to order that way, or you need them right away,” Cox said.
For the first quarter, Lowe’s said lawn and garden, lumber and building materials, millwork, paint, and tools and hardware were the product categories that performed “above average.”
As of April 29, Lowe’s operated 1,860 home improvement and hardware stores in the United States, Canada and Mexico, the retailer said.
The Associated Press contributed.
Niblock reaffirms HB 2 stance
A day after Gov. Pat McCrory signed House Bill 2 into law last month, Mooresville-based Lowe’s was among the first major corporations to come out against the measure. And on Wednesday, the retailer’s CEO reaffirmed that stance as lawsuits around the controversial measure proceed.
“We were one of the first companies to come out and share our position on diversity and inclusion,” CEO Robert Niblock told the Observer. “It’s our hope ... as you think about what’s happened with the lawsuits, that there will be a resolution to that in the future. But it doesn’t change our position of having diversity and inclusion as being core values.”
Niblock added that the law hasn’t affected recruiting efforts at its Mooresville headquarters or at its North Carolina stores.
“There’s nothing we’ve seen that has been a discernible impact coming from the media attention around HB2,” he said.
HB2 sets a statewide class of nondiscrimination that does not include sexual orientation or gender identity. It also requires people in government facilities to use the bathroom that corresponds with the gender on their birth certificate.