The Home Depot and Lowe’s Cos., the nation’s two largest home-improvement retailers, each reported gains in revenue and profit for the first quarter of 2010 (see box below). But neither company seems quite ready yet to pop the champagne cork about an economy whose sustained recovery is, if not in doubt, still hard to measure and time.
The Atlanta-based Depot’s quarterly earnings gain was impressive, even if it did include several one-time items: $33 million related to the extension of the company’s guarantee of a third-party senior secured loan, and $73 million related to the closing of its Expo Design Center business. (Depot officers are scheduled to discuss their company’s financial performance with shareholders on Thursday.)
Lowe’s, which is based in Mooresville, N.C., reported its first positive comp-store sales increase in 15 quarters. Its stores in 45 of 50 states, as well as those in Canada, reported positive comps, as did 13 of Lowe’s 20 product categories. Still, Lowe’s chairman and CEO Robert Niblock said that while his company is “optimistic” about sales growth in 2010, it doesn’t expect “significant” growth until 2011.
Both companies benefited during the quarter from government stimulus spending, which ranged from the Home Renovation Tax Credit in Canada, which expired in the first quarter; to the U.S. Department of Energy’s cash-for-appliances trade-in rebate program. Indeed, Lowe’s boosted its stores’ appliance inventory in anticipation of a sales boost from the rebate program, which contributed to an overall 9.8% increase in its inventory for the quarter.
However, while customer transactions during the quarter rose for both companies—by 4.2% for Depot and 7.1% for Lowe’s—the average purchase per customer was down, by 0.2% to $52.54 for Depot, and by 2.3% to $62.27 for Lowe’s.
"Our solid start to the year was driven by great performance in seasonal categories and strong growth in customer transactions," said Frank Blake, Depot's chairman and CEO. Lowe’s also saw higher purchases in outdoor products, including outdoor power equipment and patio furniture. Another positive sign for Lowe’s was its double-digit comp-store sales gains in installation services. During the quarter, the retailer entered into an exclusive partnership with StainMaster carpet.
Based on third-party consumer polling, Lowe’s claims that its stores gained market share in 11 product categories during the quarter. On a rolling four-quarter basis, the company said that its overall market share grew 70 basis points, or 0.7%, which Larry Stone, Lowe’s COO, said was more than any other home improvement retailer.
In a prepared statement, Home Depot updated its guidance for fiscal 2010, during which it expects its sales to increase by about 3.5%, and for its diluted earnings per share to grow by 21% to $1.88. Lowe’s will open between 40 and 45 stores in fiscal 2010, during which it expects its sales to increase by 5% to 7%, its comp-store sales to grow by between 2% and 4%, and its diluted earnings to fall somewhere between $1.37 and $1.47 per share.
“Things just seem to be getting better,” said Stone.
John Caulfield is senior editor for BUILDER magazine.
Home Depot* Lowe’s**
Revenue $16.863 billion $12.388 billion
% chg. from 1Q09 4.3% 4.7%
Same-store sales % chg. 4.8% 2.4%
Net income (in mil.$) $725 million $489 million
% chg. from 1Q09 41.1% 2.7%
Stores 2,244 1,721
*For three months ended May 2, 2010
**For three months ended April 30, 2010
Sources: Company financial statements
Learn more about markets featured in this article: Atlanta, GA.