The next few weeks will bring three important data points for Home Improvement retailers, and their investors. You may be able to pick a winner for the remainder of the year by the end of August.
Big Two Results
Later in August, both The Home Depot, Inc. (NYSE:HD) -August 20 and Lowe’s Companies, Inc. (NYSE:LOW) -August 21, report second quarter (Q2) results. This will be fascinating because of recent macro trends in home sales (up), overall retail sales (up 4% in June and continuing to rise) and slowly improving consumer sentiment. From my own on the ground observations in local stores, I expect both to have improved significantly over Q1 and The Home Depot, Inc. (NYSE:HD) to post better numbers than Lowe’s Companies, Inc. (NYSE:LOW). I continue to be impressed with The Home Depot, Inc. (NYSE:HD)’s customer crowds and the effort of their staff. How all this translates into real numbers for Q2 will tell us a lot about the rest of the year because Q2 and right now are high season for sales. Impress customers now, and you should be able to finish strong.
Dreaming in the Orchards
Nearly simultaneously with Q2 results we will likely learn what happens with a distant competitor now in bankruptcy, Orchards Supply and Hardware. Lowe’s Companies, Inc. (NYSE:LOW) has a low, placeholder bid in for Orchards and on 8/14 we should learn if anyone else shows up at the auction for Orchards. By the August 20 sale hearing we should know if Lowe’s Companies, Inc. (NYSE:LOW) wins or some other competition does, and how much is paid for Orchards.
My visits to Orchards new stores in the Portland OR area reveals ghostly stores devoid of customers, staffed by demoralized and confused employees, and desperate deal advertising. This alone is sufficient for me to conclude Orchards prospects as a stand alone business are bleak. My July blog Lowe’s Buys Trouble or Grabs a Bargain? details all my reasons for this opinion. Lowe’s Companies, Inc. (NYSE:LOW) offered the opinion it may run Orchards as a separate, stand alone business, but this ignores the demoralized staff and the conflict with some competitive (with Lowe’s) store locations. If Lowe’s “wins” it will have a lot to sort out and could wind up distracted, ultimately losing.
What’s Sears got to do with it?
Sears Holdings Corp (NASDAQ:SHLD) originally spun out Orchards, and Orchards carries a lot of Craftsman (Sears brand) inventory. Other Orchards inventory competes with Sears Holdings Corp (NASDAQ:SHLD) in a limited fashion. At least one new Orchards store in Oregon is a stone’s throw from a major Sears location. How will access to Craftsman products be handled in the Orchards sale? Will Lowe’s Companies, Inc. (NYSE:LOW) now retail Craftsman and nail (no pun intended) Sears with new competition? Sears Holdings Corp (NASDAQ:SHLD) is already in more than a bit of trouble, it really does not need more. Its stats and growth numbers are swamped with negatives, too depressing (and unnecessary) to repeat here. Just a sample: Q1 Earnings per share minus 4.6%, followed by Q2 minus 2.6%, enough said. This sort of turmoil does not help Sears in the short term, but maybe a longer term help moving Craftsman brands could be in store.