There seem to be two drastically different tales from the largest two competitors of the home improvement game. Additionally, there seems to be no shortfall of natural disasters that are directly linked to construction and rebuilding of homes. Along with the growth of the housing markets, Lowe’s Companies, Inc. (NYSE:LOW) and The Home Depot, Inc. (NYSE:HD) should have almost identical earnings. So why then are earnings so different in two companies that roughly share the same geographical location and market segment?
The Home Depot, Inc. (NYSE:HD) recently raised 2013 guidance after sales of sales of $19.1 billion after the first quarter. With a 7.4 percent increase in sales from the previous year, due to exposure to Sandy and favorable weather, this home improvement retailer seems to be benefiting from the upswing in the housing market.
With the same market conditions, however, Lowe’s Companies, Inc. (NYSE:LOW) seems to be on the losing end of the home repair deal. Sales for the quarter decreased 0.5 percent to $13.1 billion from $13.2 billion in the first quarter of 2012, while comparable sales for the quarter decreased 0.7 percent.
A Walk Down the Isle of Capri Casinos (NASDAQ:ISLE)
The Home Depot, Inc. (NYSE:HD) focuses on carrying quality, eco-friendly brands within the store such as Behr paint, Martha Stewart Living décor, Charmglow Hampton Bay lighting, Mills Pride cabinets, RIDGID and Ryobi power tools. With this vast selection, The Home Depot, Inc. (NYSE:HD) seems to have hit the branding spotlight mix. Carrying a variety of products, while providing excellent product knowledge from sales associates has continued to drive revenue growth for a stellar quarter.
In comparison, the Lowe’s Companies, Inc. (NYSE:LOW) brand mix includes names such as Allan and Roth, CrossCreek, Evertrue, Garden Treasures, Harbor Breeze, Kobalt, and Reliabilt Doors. These brands have driven growth for Lowe’s Companies, Inc. (NYSE:LOW) in the past, however the key in these two differing tales is that Lowe’s Companies, Inc. (NYSE:LOW) has been trying to reach a broader audience, by offering more brands on the shelves. However, this strategy hasn’t paid off for the homeowners that are looking to remodel their homes and want quality brands at affordable prices.
Unfavorable Weather Conditions and Staffing
With $540 million in revenues, a 2.5% increase from the previous year, Lowe’s Companies, Inc. (NYSE:LOW) was also prepared for the arrival of spring with early stocking of products as well as extra staffing for the spring rush. However, colder and wetter conditions drove lawn and garden, seasonal living, seasonal cooling and lawnmower growth into the negative digits. As well, Lowe’s implemented a plan called the Value Improvement Program. This program has added extra hours around peak times with an emphasis on closing rates for undecided customers. This operational decision stressed labor hours but will pay off as these new operational hours improve revenue growth.
Housing Market
Builders FirstSource, Inc. (NASDAQ:BLDR) expects single family housing starts will grow approximately 24% by the end of 2013. With the largest decline in housing starts since the Great Depression, new housing starts have fallen by 73% from the 2005 peak to the current trough. According to the latest report from the
Census Bureau and HUD
, Building Permits have increased 35.8% since 2012. Additionally, housing starts have increased 13.1% for 2013 with a 3.3% increase in housing completions for the year.
The Bottom Line
Although I believe that both Lowe’s and The Home Depot, Inc. (NYSE:HD) are long term buys, I think that The Home Depot, Inc. (NYSE:HD) will continue to provide exceptional growth in the years to come. Home Depot has proven that they have kept quality product lines while providing excellent customer service on a consistent basis. With new home starts continuing to rise and economic conditions continuing to improve, Home Depot has proven that a strong brand mix, with a focus on home improvement, is the way to drive growth year after year.
Kaitlyn Tokay has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Lowe’s. Kaitlyn is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article The Two Walks of the Housing Recovery originally appeared on Fool.com is written by Kaitlyn Tokay.
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