Home Depot, Lowe's Optimistic on Housing Post-Election
Despite cutting its full-year financial outlook, Lowe’s (NYSE:LOW) said it believes the housing market will continue to drive sales, a sentiment echoed by larger rival Home Depot (NYSE:HD).
Lowe’s reported lower earnings and revenue than expected for the third quarter, sending the retailer’s shares down over 3% on Wednesday in early trading. Sales at Lowe’s locations open at least a year increased 2.7% globally, while Wall Street analysts expected 2.9% growth. According to executives, store traffic slowed in August and September due to softer housing trends before shoppers started to return in October, the last month of the company’s fiscal quarter.
Lowe’s CEO Robert Niblock said Lowe’s had braced for the home-improvement market to cool off in the third quarter, but headwinds for the industry haven’t changed.
“Overall, from the consumer’s standpoint, their feelings around the home, the value of their home increasing [and] their intentions to invest in the home have all continued to be strong during the year,” Niblock said during a conference call with analysts.
Niblock cited forecasts for total housing turnover, home-price appreciation and disposable income in the U.S., all of which show smaller growth in 2016 versus 2015. Rising home values encourage consumers to spend on upgrades.
“We still expect it to be a very healthy environment,” Niblock added. “We still think the number one driver that’s out there is continued appreciation in homes, but it is moderating some. So still a very healthy industry, but not to the extent that we would’ve seen [a year ago].”
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| HD | THE HOME DEPOT INC. | 332.76 | -2.10 | -0.63% |
| LOW | LOWE'S COMPANIES INC. | 228.81 | +0.51 | +0.22% |
Home Depot, whose third-quarter results outpaced estimates, also sees positive trends in the housing market that will support demand for do-it-yourself projects.
“We don't see significant change in the drivers of growth. We have had foundational GDP growth, we have had, in housing, home value appreciation, housing turnover, new household formation and then layer on top of that 65% of the housing stock in the U.S. is now in excess of 30-years old. All of those are drivers of business for us,” Home Depot CEO Craig Menear said on the company’s earnings call Tuesday.
Home Depot booked stronger same-store sales growth than Lowe’s, reporting a 5.5% increase in sales at stores open more than a year. Total revenue increased 6.1% to $23.15 billion, and Home Depot’s bottom line grew 16% to $2 billion.
Lowe’s profit was negatively impacted by costs related to canceled projects and the closing of an Australian joint venture.
Earnings dropped 49% to $379 million, or 43 cents a share, from $736 million, or 80 cents a share, in the same period last year. Excluding one-time costs, adjusted earnings rose to 88 cents a share from 80 cents. Revenue jumped 9.6% to $15.74 billion.
Lowe’s now projects a profit of $3.52 a share for fiscal 2016. The Mooresville, N.C.-based retailer previously issued guidance for earnings of $4.06 a share. Revenue is expected to grow 9% to 10%, versus the prior forecast of 10%. Likewise, same-store sales are on pace to climb 3% to 4%, compared to the last estimate of 4%.