Home Depot or Lowe's: Which Company Built the Better Quarter?

Source: Home Depot and Lowe's.

Home Depot  (NYSE: HD  )  and Lowe's  (NYSE: LOW  ) , the largest home-improvement retailers in the world, have recently released their fourth-quarter reports to finish off fiscal 2013. Both stocks have risen sharply following the releases and they may continue their runs for the rest of the year. Let's break down the reports to determine which had the better quarter and which could provide the highest returns for investors going forward.

The quarterly results
Feb. 25 brought Home Depot's fourth-quarter report, and it was mixed in comparison with analysts' expectations. Here's a breakdown of the results and a year-over-year comparison:

Metric Reported Expected
Earnings Per Share $0.73 $0.71
Revenue $17.70 billion $17.99 billion
  • Earnings per share increased by 7.4%.
  • Revenue decreased by 3%.
  • Comparable-stores sales increased by 4.4%.
  • Gross margin expanded 10 basis points to 35%.
  • Raised its quarterly dividend by 21% to $0.47.
  • Paid dividends of $544 million and repurchased $2.1 billion of common stock.
  • Other most notable update: The fourth quarter of fiscal 2012 contained an extra week, so on a 13-week comparative basis:
    • Earnings per share increased by 19.7%.
    • Revenue increased by 3.9%.

Lowe's released its fourth-quarter report on Feb. 26, and the results came in below analysts' expectations. Here's a breakdown of the report and a year-over-year comparison:

Metric Reported Expected
Earnings Per Share $0.29 $0.31
Revenue $11.70 billion $11.73 billion
  • Earnings per share increased by 11.5%.
    • Excluding certain charges, earnings per share were $0.31, an increase of 19.2%.
  • Revenue increased by 5.6%.
  • Comparable-store sales increased by 3.9%.
  • Gross margin expanded 40 basis points to 34.67%.
  • Expected to maintain its quarterly dividend of $0.18.
  • Paid dividends of $189 million and repurchased $958 million of common stock .
  • Other most notable update: Lowe's authorized an additional $5 billion in share repurchases on top of the $1.3 billion remaining in its current program.

The fiscal year ahead
In its fourth-quarter report, Home Depot provided its outlook for fiscal 2014; here's what it expects the year will hold:

Metric Expected Fiscal 2013
Earnings Per Share $4.38 $3.76
Revenue $82.60 billion $78.81 billion

This outlook calls for earnings per share to increase by 16.5% and revenue to increase by 4.8% year over year; these projections came in just below the consensus analyst estimate, which expected earnings of $4.43 per share on revenue of $82.90 billion, but this is not a cause for concern. In addition, the company expects comparable-store sales growth of about 4.6%, the opening of seven new stores, and approximately $5 billion in share repurchases. This strong outlook paired with the mixed earnings report caused the stock to rise nearly 4% in the next trading session and it has continued higher since then.

In its report, Lowe's provided its outlook on fiscal 2014 as well. Here's what the company expects to accomplish:

Metric Expected Fiscal 2013
Earnings Per Share $2.60 $2.14
Revenue $56.10 billion $53.42 billion

This outlook would result in earnings per share increasing by 21.5% and revenue rising by 5% year over year; this was just below the consensus analyst estimate, which called for earnings of $2.65 per share on revenue of $56.2 billion, but the difference was so narrow that the market shrugged it off. Lowe's also expects to open approximately 15 new home improvement stores and five hardware stores. This outlook may have changed investors' minds about the strength of the company after it missed earnings, and its shares proceeded to rally by more than 5.4%. 

And the winner is...
After comparing these companies' quarterly reports and outlooks on fiscal 2014, the winner of this match-up is Home Depot. Its earnings were mixed, but the result was very impressive on a 13-week comparative basis, and Home Depot's outlook calls for substantial growth. Also, its healthy 1.9% dividend and $5 billion in share repurchases during the year will return additional cash to shareholders.

Lowe's earnings report was very strong as well, but I think the rally of 5.4% was overdone and the stock needs to come back down a point or two before investors should consider buying. With this said, I believe Home Depot could outperform the overall market for the remainder of the year, so Foolish investors may want to consider initiating positions now.

Is either of these home improvement retailers our top stock of the year?
Home Depot and Lowe's are both very good stocks today, but there's a huge difference between a very good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

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Joseph Solitro

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9/2/2015 10:44 AM
HD $114.76 Up +1.69 +1.49%
Home Depot CAPS Rating: ****
LOW $68.35 Up +0.60 +0.89%
Lowe's CAPS Rating: ****