The housing market continues to improve, as evidenced by a variety of positive housing-related data points. This can only mean good things to come for the major U.S. home improvement retailers, The Home Depot, Inc. (NYSE:HD) and Lowe's Companies, Inc. (NYSE:LOW).
The broader economy continues to sputter along, evidenced by weak growth in gross domestic product, and the labor market is still showing tepid improvement at best.
However, the housing market has proven to be a pillar of strength in an otherwise frustratingly slow recovery from the depths of the Great Recession.
Improving fundamentals, strong brands, and continued strength in the housing market are why The Home Depot, Inc. (NYSE:HD) and Lowe's Companies, Inc. (NYSE:LOW) are succeeding in this challenging environment, and will continue to do so going forward.
Improving investors' portfolios, one brick at a time
Reuters reported that existing home sales in the United States surged in July to their highest level since November 2009. In all, existing home sales climbed 6.5%, and housing analysts and economists alike see a solid foundation set for a continued housing recovery.
Not surprisingly, both The Home Depot, Inc. (NYSE:HD) and Lowe's Companies, Inc. (NYSE:LOW) are reaping the rewards.
The Home Depot, Inc. (NYSE:HD) reported first-quarter sales growth of 7.4% year over year. Same-store sales growth for the first quarter clocked in at a healthy 4.3%, with U.S. same-store sales growth coming in at a robust 4.8% during the quarter.
The momentum continued in the second quarter, in which The Home Depot, Inc. (NYSE:HD) racked up solid 10.7% growth in same-store sales. Diluted earnings per share, meanwhile, soared 23% year over year.
Lowe's Companies, Inc. (NYSE:LOW) hasn't had as smooth of a year as its major rival, but the company has performed better recently.
Lowe's widely disappointed when it reported mediocre first-quarter results. Sales fell 0.5% from the same period one year ago. Furthermore, while the company's first-quarter earnings per share rose 14% year over year, the results missed analyst expectations.
Thankfully, things improved substantially in the company's most recent quarter. Lowe's Companies, Inc. (NYSE:LOW) reported second-quarter same-store sales growth of nearly 10%, and impressive 37.5% growth in diluted earnings per share.
As Chief Executive Officer Robert Niblock indicated in the earnings release, Lowe's Companies, Inc. (NYSE:LOW) improved results stem from a concerted effort to revamp its pricing structure, focusing on everday low prices rather than temporary discounts. Moreover, the company benefited from friendlier weather conditions in the second quarter, and of course, its results were buoyed by the pronounced strength in the housing market.
Not all home improvement retailers are created equal
Unfortunately, not every retailer in the space is reaping the rewards of an improving housing market.
Sears Holdings Corporation (NASDAQ:SHLD) fell 9% after releasing its own second quarter results, which widely disappointed.
Sears Holdings Corporation (NASDAQ:SHLD) reported a wider-than-expected loss, of $194 million, due largely to a 1.5% drop in same-store sales. Total revenue fell 6%, mostly because of store closings.
Sears Holdings Corporation (NASDAQ:SHLD) offers a wider range of products outside of home improvement, but even its housing-related segments performed poorly. For example, sales of appliances were weak, which stands in stark contrast to the success of The Home Depot, Inc. (NYSE:HD) and Lowe's.