Do-it-yourself chains Home Depot and Lowe's enjoy growth beyond website's online reach

By Paul Ziobro 

Do-it-yourself chains Home Depot Inc. and Lowe's Cos. appear to have built a retail oasis mostly walled off from the reach of online behemoth Amazon.com Inc.

Their uniqueness in the retail landscape will be driven home next week as the two chains report second-quarter earnings. Analysts project sales at existing stores will rise 4.8% at Home Depot and 4% at Lowe's, according to data provider FactSet. That would mark the eighth straight quarter of at least 4% year-over-year growth for each company.

Such gains are the envy of other retailers. Kohl's Corp., Macy's Inc. and Nordstrom Inc. each recently posted ongoing sales declines amid difficulty getting more people to shop in their stores. Wal-Mart Stores Inc., which reports its fiscal second-quarter results on Thursday, is projecting a small same-store sales gain, while Target Corp., whose quarterly earnings are due Wednesday, has projected a sales dip.

The retailers that have reported earnings thus far have pointed to slightly improving trends from earlier in the year. But they also have seen their business models upended by the rise of online shopping that reduces the need to visit a store for a sweater or blender. Macy's is responding by closing 100 locations.

Executives from the home improvement chains cite a litany of favorable housing trends for their good fortunes. New households are being formed and housing turnover remains steady. Millennials are even willing to buy homes, albeit six years later than normal, according to Home Depot. All that spurs trips to large chains to pick out appliances and paint colors, and plan projects around the home.

About two-thirds of U.S. homes are also more than 30 years old, Home Depot says, requiring more spending on upkeep. Low interest rates and rising home values -- which are now just 2% below their July 2006 peak, according to S&P CoreLogic Case-Shiller Indices -- make replacing a roof, or even updating a kitchen, more palatable, as homeowners view their homes as investments, not expenses.

Such trends have kept the home-improvement sector growing well above the broader retail market. Sales at home-improvement chains and similar stores are up 6.4% through July versus the same period a year ago, according to the Commerce Department. In contrast, overall retail sales are up 2.8% during the same period. Only drugstores and restaurants this year among brick-and-mortar locations are outrunning the home improvement stores.

Online sales, of course, are growing much faster, up 10.5% at non-store retailers this year, according to the same federal data. Much of that is coming from Amazon. But the e-commerce giant doesn't have a toehold in large parts of the home improvement space, like lumber, paint and gardening supplies. Home Depot says just 25% of its business -- smaller, easy-to-ship items like power drills and small hand tools -- faces tough online competition.

That doesn't mean either chain is immune to Amazon. A UBS survey in June found that 11% of consumers planning a home improvement project themselves planned to buy something from Amazon. That is far behind the 36% who said they planned to shop at Home Depot and the 21% at Lowe's, but up from just 7% a few months back.

Write to Paul Ziobro at Paul.Ziobro@wsj.com

 

(END) Dow Jones Newswires

August 15, 2016 02:48 ET (06:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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