Ten years ago, Home Depot’s (HD, Financial) annual revenues stood at $77.3 billion; the same year, Lowe’s (LOW, Financial) made $48.28 billion, a difference of around $29 billion. Lowe’s reduced that gap to around $19 billion in 2010, only to see it widen once again to $29 billion in 2015.
As Home Depot kept its ship steady, Lowe’s has struggled to match its revenue performance over the five years in question. Last year, Lowe’s managed to crank up the pace, nearly catching up with Home Depot in terms of net sales expansion.
Home Depot reported $94.59 billion sales in 2016, $6.076 billion more than it made the year before. Lowe’s reported $65.02 billion sales in 2016 and nearly caught up with Home Depot in terms of volume growth.
The revenue gap between the two companies remains around $29 billion, but it must also be noted that Lowe’s was able to grow its revenues by 10.6% last year compared to Home Depot’s 6.8%.
The best part about the newfound momentum at Lowe’s is that the second-largest home improvement store in the U.S. does not expect its 2016 performance to be an anomaly. The company is forecasting a sales increase of 5%, which is 0.3% more than Home Depot is expecting for the year.
By the end of fiscal 2015, Lowe’s operated 1,857 home improvement stores compared to Home Depot’s 2,274. That was a massive disadvantage that Lowe’s had, and the company improved its store count to 2,129 by the end of fourth-quarter 2016 thanks to the acquisition of Canada-based RONA (RONAF). Lowe’s has decided to crank up the pace on the store count front as it is targeting 35 new stores in 2017 compared to six new stores planned by Home Depot.
Though it is still way too early to say that Lowe’s has attained parity with Home Depot, there is clear momentum behind Lowe’s, and the company expects the trend to continue in 2017 as well. It made several important moves last year, such as buying RONA, reducing its headcount and also improving its operating metrics.
Lowe’s needs to counter the size and location advantage that Home Depot enjoys in the U.S., and it's good to see that the company is taking steps in that direction. As with any retailer of scale, the more you sell the better your margins will become. Lowe’s margins have always lagged behind Home Depot’s, and scale is the only way it will be able to close that gap.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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