The winter season is one of the peak seasons for any retailer. It makes most of its money at this point in time, since people are willing to spend. However, there are some industries which do not witness the same. For instance, the home improvement industry witnesses higher sales during the spring season. This is because this is the most appropriate time to get the houses repaired.
However, the home improvement retailers experienced great demand even in the holiday quarter. Each of the players registered great numbers in the recently reported quarter. Lowe’s Companies (LOW, Financial) is one of the most popular players in the home improvement industry and it recently reported a blockbuster quarter. Both the top line and the bottom line were ahead of the Street’s estimates, making its shares move north. Let us get into the details.
The key drivers
Revenue for the quarter surged to $12.54 billion from $11.66 billion in the year ago quarter. Thus, the top line registered an increase of 7.5%. It was also higher than the analysts’ estimate of $12.31 billion. Sales were driven by the addition of 8 new stores in the last one year as well as a same store sales growth of 7.3%. Comparable store sales in the U.S. grew 7.4% during the quarter, as customers showed higher interests in renovations. For the full year, same store sales grew 4.3%.
Overall, the housing industry has been recovering and people are willing to spend on home renovations. Further, improvement in the job market and lower gasoline prices have been driving sales, since customers are left with more income at their disposal.
The gross margin for the quarter remained flat, mainly due to an increase in cost of sales of 34.7%. However, the bottom line of the company did show a significant improvement. The earnings rose 48.4% to $0.46 per share, as compared to the previous year. This was much higher than the analysts’ estimate of $0.44 per share.
As against the peers
Peers such as Home Depot (HD, Financial) too have performed well. Home Depot’s top line surged 8.2% over last year, clocking in at $19.16b billion. Also, comparable store sales grew 7.9% during the quarter. Both the top line and the bottom line were ahead of the analysts’ expectations. Thus, the numbers were slightly better than that of Lowe’s. However, Lowe’s has registered a higher share price appreciation than its rival. Its shares have risen 51% in the last one year, whereas Home Depot’s shares have increased 41% only.
A bright outlook
The home improvement retailer also announced a decent guidance for the year. It expects sales to increase by 4.5% to 5% along with same store sales growth of 4% to 4.5%. Further, it intends to open 15 to 20 home improvement and hardware stores in 2015 and register a bottom line of $3.29 per share. This indeed made the investors happy.
Moreover, its acquisition of Orchard Supply Hardware in 2013 has been helpful in its growth. Also, the upcoming spring season is expected to boost demand further for such products.
My take
Lowe’s Companies is indeed a great player and has been quite rewarding to its investors. It also repurchased $1 billion of stock and paid $225 million in dividends during the last quarter. Since the industry is on an upsurge, this company is definitely going to be one of the most promising bets. Investors should take note.
