Home improvement retailers are seeing robust demand for their products. Consumers have begun spending on new homes as builders have started building new houses and apartments at a higher annual rate of 896,000 for the month of July 2013.
As the housing market has recovered, it has given rise to a number of opportunities for not only the home builders, but also everyone related to housing activities. Home improvement retailers are no exception. Both Home Depot (HD, Financial) and Lowe’s (LOW, Financial) have been posting great results on the back of the housing recovery.
Recent Performance
Both companies posted great results for their latest quarter. Home Depot reported an increase of 3.9% in its revenue, on a comparable basis, over last year. Revenue was primarily driven by increased demand for home improvement products as people are buying more homes. Also, sales of big ticket items increased 1.1% during the period. Bottom line also surged by 7.4% along with an upgraded outlook for the year.
However, Lowe’s quarter was even better as it tried to compete with Home Depot. Its revenue increased more than 5% over last year’s quarter, driven by its promotional measures such as providing discounts. The home-improvement retailer witnessed an increase of 4.4% in total customer transactions and a jump of 1.1% in the average purchase size of each customer. Also, its gross margin expanded by 40 basis points to 34.7%. Its bottom line too jumped 11.5% to $0.29 per share, for the quarter.
Hence, Lowe’s seem to be doing really well by offering differentiated products to its customers, resetting its stores and offering a credit program. The company has also resorted to offering low prices to its customers on a regular basis which has got customer attention.
Lowe’s Racing Ahead
Lowe’s better performance has attracted a lot of investor attention which is reflected in the stock price. Stock price performance of these two retailers will give a clear idea about how investors have benefited from their growth.
Although Home Depot is a bigger company, in terms of revenue, Lowe’s performance has been better than Home Depot in the last year. Lowe’s return of 12% is much more than Home Depot, which has gained only 2.7%.
Looking ahead, Lowe's plans to grow and expand through various moves such as hiring more personnel and strengthening its inventory. It has been focusing on its product lines so that it can satisfy the requirements of its customers. Remodelling areas of its stores might also lure in new customers.
Moreover, its acquisition of 72 new stores of Orchard Supply Hardware will expand its footprint in the California market where Home Depot already enjoys a leading position.
However, despite an increase in demand due to improvement in the housing sector, there is a potential matter of concern for these retailers. An increase in mortgage rates might be an obstacle to the growing demand for housing and hurt home improvement retailers in turn.
The Future Looks Bright
Lowe’s seems to be outperforming its biggest rival and is expected to perform well going forward. Its strategies of promoting its products, increasing workforce and improving inventory might help the company attract more customers. Investors should take note of this growing home-improvement retailer.
