retail watch | May 20, 2021 |
Home Depot and Lowe’s record outstanding quarters, but Wall Street blows them off anyway

If you’re a do-it-yourselfer, a professional builder, a designer working on a project, or a supplier in the home improvement business, you may have asked yourself, “Which is better: Home Depot or Lowe’s?”

The answer, at least for the moment, is: Yes.

Home Depot and Lowe’s are two of the best retailers in America, and they continue to put up outstanding financial performances while remaining innovative in their merchandising strategies both in-store and online. But ask Wall Street, and you might get a different answer—one that may not hold either brand in quite the esteem their customers do.

The two heavyweights in the home improvement space (which are both also aggressively moving into home decor and furnishings) reported stellar first-quarter numbers this week, blowing away analyst forecasts and putting up performances that you just don’t see very often in the retail business. But on the day each reported its earnings—Tuesday for Home Depot, Wednesday for Lowe’s—the prices of both brands’ shares declined modestly, or by about 1 percent each. And even though share prices are recovering as the week progresses, both companies are seeing numbers that are way off from their 52-week highs, even as other pandemic superstore retailers, like Target, Wayfair and Williams-Sonoma, are at or near their peaks for the past year.

So, what gives? First, a quick recap of the incredible numbers the two companies put up for their quarters:

  • Sales: Home Depot did $37.5 billion, up 33 percent; Lowe’s did $24.4 billion, up 24 percent.
  • Comp store sales: Home Depot was up 31 percent; Lowe’s was up 26 percent.
  • Profits: Home Depot netted $4.15 billion, or $3.86 a share; Lowe’s did $2.33 billion, or $1.76 a share.

These are crazy numbers, outperforming or equaling most other national retailers, including the two mass-market giants, Walmart and Target. (Note that though this period goes up against the start of the pandemic shutdown, each of these retailers remained open while ones that were deemed “nonessential” were forced to close for as long as three months. Note, too, that Home Depot, with annual sales of around $132 billion and approximately 2,300 stores, is about one-third larger than Lowe’s, which had annual revenue of around $85 billion and operates just under 2,000 stores.)

Executives at both companies said the strong business trend has continued since the quarter closed a few weeks ago, and they remained optimistic about prospects for the balance of the year. But Wall Street wasn’t so sure. Yes, each company’s share price is up about 20 percent for the year, but that comes as the overall stock market has boomed since Joe Biden became president and as the vaccine rate has increased. Government stimulus checks haven’t hurt overall retail sales, either.

Which takes us back to the original question: Why are investors still skeptical? There appear to be several reasons, perhaps foremost among them being the concern that the surge in home spending has peaked and will diminish going forward as Americans start to resume their normal outside-the-home lives. We’ve already started to see that with still-developing resurgences in spending for travel, apparel and vacations. Yet that was already in play even as Home Depot and Lowe’s were reporting continued strong business into early spring.

Investors also seem troubled by rising prices caused by ongoing supply chain issues, particularly when it comes to lumber. (Both retailers talked about lumber prices but said they had not seen consumer resistance yet to higher tabs.) Some of the negativity also comes from those who believe that the stimulus checks have created an artificial high and predict that overall consumer spending will now recede. (There’s been no evidence of that so far across the American economy, and credit-card balances continue to decline as people pay down their debt levels.)

Finally, to a lesser degree, there are concerns about the overall housing market, which remains incredibly strong but also incredibly tight, with the supply of new homes coming on the market and resales at minimal levels compared to demand. But again, that would suggest ongoing interest in fixing up existing homes, which is a cornerstone of the home improvement trade business.

So while Home Depot and Lowe’s perhaps remain better places to shop in than invest in at the moment, it’s not because of anything they are doing wrong. In fact, both brands continue to do more things right than just about any other retailer in the country.

Homepage photo: ©Fotobieshutterb/Adobe Stock

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Warren Shoulberg is the former editor in chief for several leading B2B publications. He has been a guest lecturer at the Columbia University Graduate School of Business; received honors from the International Furnishings and Design Association and the Fashion Institute of Technology; and been cited by The Wall Street Journal, The New York Times, The Washington Post, CNN and other media as a leading industry expert. His Retail Watch columns offer deep industry insights on major markets and product categories.

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