The housing industry in the U.S. is improving as consumer confidence gets better. People are now willing to spend. Therefore, mortgage rates as well as the housing prices are rising as demand surges. However, home improvement retailers found it difficult to sell products during the winter season mainly because of lower spending on yard and garden products.
Home improvement retailer Lowe’s (LOW, Financial) reported its first quarter results recently which failed to please its investors, enabling its share price to fall.
By the Numbers
Revenue surged 2.4% over last year, clocking in at $13.4 billion. This improvement in the top line was driven by same-store sales growth of 0.9% as more people flocked into its stores compared to last year’s quarter. The retailer provided huge discounts and promotions in order to attract shoppers to its stores.
However, the colder months of January and February stopped people from buying exterior category items such as gardening tools. But demand for indoor items witnessed solid demand, resulting in higher sales. Indoor category items include indoor paints and plumbing parts.
Earnings also climbed to $0.61 per share from $0.49 per share, a year ago. Even if we get rid of one-time expenses, the bottom line rose 18% to $0.58 per share.
Tough Competition from Peers
Lowe’s faces stiff competition from its peer Home Depot (HD, Financial). Home Depot is a much larger player and has the largest market share in the U.S. In the last five years, Home Depot’s quarterly revenue inched up by 3.3% whereas Lowe’s revenue declined 3.2%.
Also, the stock price of Home Depot has appreciated by 232.7% over the last five years. On the other hand, Lowe’s stock price has increased 134.8%. This is mainly because of Home Depot’s better performance over its archrival.
In fact, Home Depot posted a better same-store sales growth of 2.6% in its latest quarter, much higher than that of Lowe’s. Also, Home Depot’s same-store sales in the U.S grew 3.3% as demand for its products in the U.S. moved north.
Road Ahead
Although Lowe’s faces tough competition from its peer, the home improvement industry in general looks interesting. This should benefit even Lowe’s. As the spring season is setting in, the most important season of the industry, demand seems to be picking up. Therefore, the company should witness growing sales.
Moreover, the retailer reported a bright outlook for the year, despite facing a challenging quarter at the start of the year. It expects its revenue to grow 5% and same store sales to increase by 4%. Also, earnings are estimated to be at $2.63 per share for fiscal 2014.
Additionally, the home improvement company plans to open 15 new stores during the year, out of which 10 stores are home improvement and five are hardware stores.
Summary
Therefore, the future looks bright for Lowe’s. In fact, it is not only Lowe’s but also Home Depot which should benefit from the change in weather conditions. Although Lowe’s is a smaller company, it has room for growth. This is clearly evident from its focus on new store openings. In fact, the company also plans to concentrate on its e-commerce business since online shopping has become very popular. These initiatives, coupled with a bright outlook makes Lowe’s an interesting pick.
