Lowe's Trails Home Depot as Housing Values Revive -- WSJ
August 18 2016 - 3:04AM
Dow Jones News
By Paul Ziobro
The rising housing market isn't boosting home-improvement
retailer Lowe's Cos. as much as Home Depot Inc.
Second-quarter sales at existing stores rose 2% for the
Mooresville, N.C., do-it-yourself chain, trailing that of Home
Depot, which on Tuesday reported its sales at established stores
gained 4.7% and profit rose 9.3%, both during the same period
compared with a year earlier.
Lowe's weaker performance widened the gap between the two
retailers, both of which are betting that improving home values
will help to overcome weak shopping trends elsewhere.
Lowe's Chief Executive Robert Niblock cited several factors:
Cooler weather in May hurt its lawn and garden business and it has
a smaller professional business than Home Depot, so it isn't
getting as big a lift from home-renovation projects. The Western
part of the U.S., where Lowe's has fewer stores compared with its
bigger rival, also was one of the strongest regions in terms of
industry sales.
The retailer maintained its forecast for sales at existing
stores to rise 4% this year. Mr. Niblock said most consumers
continue to believe their home values are increasing, which will
prompt them to spend more on big-ticket projects.
"We feel good about where the consumer is at from a macro
standpoint," Mr. Niblock said in an interview. "They're continuing
to invest in their home, continue to see the value of their home
increasing."
Shares of Lowe's, which cut its earnings guidance for the year
to reflect its acquisition of the Canadian chain Rona, fell $4.60,
or nearly 6%, to $76.88 at 4 p.m. in New York trading on
Wednesday.
Lowe's and Atlanta-based Home Depot are counting on housing
trends to insulate them from broader retail weakness. On Wednesday,
Target Corp. said sales at its existing stores fell for the first
time in two years due to what Chief Executive Brian Cornell called
a "difficult retail environment." Last week, Kohl's Corp., Macy's
Inc. and Nordstrom Inc. all posted drops in sales and challenges
getting people into stores.
Home-improvement retailers say their project-based business is
outpacing smaller purchases. Lowe's said it logged a 2.9% increase
in transactions of more than $500 in the second quarter, while
transactions of less than $50 were flat. Home Depot also reported a
wide gap between big- and small-ticket purchases last quarter.
Mr. Niblock said the lack of growth in smaller transactions was
mostly due to a decline in the lawn and garden business, rather
than from online competitors like Amazon.com Inc. picking off
smaller purchases.
In all for the quarter ended July 29, Lowe's posted a 3.6%
increase in profit to $1.17 billion. The quarter's results were
dented by an $84 million loss on a foreign-currency hedge entered
into in advance of the company's Rona acquisition. Revenue climbed
5.3% to $18.26 billion.
For the full year, the company now expects earnings of about
$4.06 a share, down from previous guidance for $4.11 a share. Total
annual sales are expected climb 10%, above analyst estimates for 8%
growth.
Anne Steele contributed to this article.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
August 18, 2016 02:49 ET (06:49 GMT)
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