Home-Improvement Stocks Are Sitting Pretty--Update
September 03 2019 - 5:17PM
Dow Jones News
By Jessica Menton
Shares of home-improvement retailers weathered the storm in
markets in August and are poised to keep climbing as the hurricane
season ramps up.
The retail sector has been a bright spot in a volatile period
for stocks, as recent economic data have shown consumer spending
remained strong and Washington delayed some tariffs on Chinese
goods until December.
Home-improvement stocks have done especially well, with shares
of Home Depot Inc., Lowe's Cos. and Floor & Decor Holdings Inc.
gaining 6.7%, 11% and 26%, respectively, in August. In comparison,
the broader S&P 500 dropped 1.8% in the month.
Some investors feared that a weak housing market, slowing global
growth and a drop in consumer confidence would hurt demand at the
retailers. But Home Depot and Lowe's both posted higher sales for
their latest quarters.
It is too early to tell what the effect on the retail sector
will be as the East Coast braces for Hurricane Dorian this week.
But analysts say the home-improvement companies could benefit as
consumers make preparations for storms by buying generators and
plywood, along with cleanup and repair activity including new
roofing and flooring.
"Home-improvement retailers in particular tend to see a bump in
their stock prices in anticipation of people rushing to board up
their houses ahead of a storm," said Steve Frazier, president at
Frazier Investment Management.
The retailers have historically seen a sales boost after a bout
of mother nature. In the third quarter of 2017 when Hurricanes
Irma, Nate and Harvey hit the U.S., Home Depot saw a rise of $282
million in initial sales after affected customers bought plywood,
bricks, drywall and roofing material. Meanwhile, Lowe's
hurricane-related sales in the same three-month period were roughly
$200 million.
Both Home Depot and Lowe's have a big presence in Florida, with
153 and 126 stores in the state, respectively, as of the end of
2018. That represents 8% and 7% of their U.S. fleets, according to
Jefferies. Floor & Decor had 18 stores, representing 18% of its
total, the firm said.
To be sure, some risks remain. The potential for store closures,
disruption at distribution centers and expenses from damages in
affected regions threaten to put a lid on retailers' bottom lines
in the near term, some analysts said.
"Higher hurricane sales may not drive increased [earnings before
interest and taxes] dollars, as the incremental margins could be
offset by the additional expenses," analysts at Wells Fargo
Securities said in a research note last week.
Shares of Home Depot fell 1.7% and those of Lowe's lost 0.9%
Tuesday as the broader market tumbled on disappointing
manufacturing data.
Write to Jessica Menton at Jessica.Menton@wsj.com
(END) Dow Jones Newswires
September 03, 2019 17:02 ET (21:02 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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