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

Home Depot (NYSE: HD  ) and Lowe's (NYSE: LOW  ) are the two largest home-improvement specialty retailers in the world and both have recently released their first-quarter results. Let's compare their earnings results and outlooks on the rest of fiscal 2014 to determine which had the better quarter and could provide the highest returns for investors going forward.

Breaking down the financial results

Source: Home Depot

Home Depot released its first-quarter report before the market opened on May 20 and the results were mixed compared to analysts' expectations; here's a breakdown and year-over-year comparison:

Metric Reported Expected
Earnings Per Share $1.00 $0.99
Revenue $19.69 billion $19.95 billion

Source: Benzinga

  • Earnings per share increased 20.5%
  • Revenue increased 2.9%
  • Comparable-store sales data:
    • 2.6% growth globally
    • 3.3% growth in the United States
  • Gross profit increased 3.1% to $6.89 billion
  • Gross margin expanded 10 basis points to 35%
  • Operating profit increased 8.7% to $2.28 billion
  • Operating margin expanded 60 basis points to 11.6%
  • Repurchased $1.25 billion worth of its common stock
  • Paid $646 million in dividends
  • Opened zero new stores, leaving its total store count at 2,263
  • Other most notable update: Home Depot announced that it intends to repurchase an additional $3.75 billion worth of its common stock over the next three quarters, resulting in approximately $5 billion of repurchases for the full year.

Source: Lowe's

Lowe's released its first-quarter report before the market opened on May 21 and the results were mixed compared to analysts' expectations as well; here's a breakdown and year-over-year comparison:

Metric Reported Expected
Earnings Per Share $0.61 $0.60
Revenue $13.40 billion $13.91 billion

Source: Benzinga

  • Earnings per share increased 24.5%
  • Revenue increased 2.4%
  • Global comparable-store sales increased 0.9%
  • Gross profit increased 4.5% to $4.76 billion
  • Gross margin expanded 70 basis points to 35.5%
  • Operating profit increased 8.7% to $1.07 billion
  • Operating margin expanded 50 basis points to 8%
  • Repurchased $850 million worth of its common stock
  • Paid $186 million in dividends 
  • Opened four new stores, bringing its total store count to 1,836
  • Other most notable update: Lowe's stated that "poor weather" greatly affected sales in the first quarter, but does not expect this to negatively impact its full-year growth expectations and noted that its performance has shown improvement in May.

What about the remaining three quarters?

Source: Home Depot

Following its strong first quarter, Home Depot reaffirmed its revenue growth expectations and raised its earnings per share guidance for the full year; here's what the company now expects to achieve:

  • Earnings per share of approximately $4.42, up 0.9% from its previous guidance of $4.38
  • Revenue growth of approximately 4.8%
The new earnings per share guidance would result in growth of 17.6% from fiscal 2013 and the increase reflected Home Depot's plan to repurchase $5 billion worth of its common stock during the year. Also, although Home Depot did not reaffirm these statistics directly, I think it is safe to assume that the company continues to anticipate comparable-store sales growth of approximately 4.6% and the openings of seven new stores during fiscal 2014.

Source: Lowe's

In its report, Lowe's reaffirmed most of its growth expectations, but raised its earnings per share guidance and reduced the numbers of stores it plans to open in fiscal 2014; here's the new outlook:

  • Earnings per share of $2.63, up 1.1% from its previous guidance of $2.60
  • Revenue growth of 5%
  • Comparable-store sales growth of 4%
  • The openings of 10 new home improvement stores and five new hardware stores, down from its previous expectations of 15 new home improvement stores and five new hardware stores
Lowe's updated outlook calls for earnings-per-share growth of 22.3% from fiscal 2013 and would push revenue over $56 billion for the full year; the company noted that the new earnings per share outlook resulted from a lower tax rate and I think the $850 million in share repurchases during the first quarter played a role in the increase as well. Also, I believe the slowing of the expansion plans was a smart move by management, just in case it were faced with another period of "poor weather."

And the winner is...
After comparing the companies' quarterly results and outlooks on the rest of 2014, the winner of this match-up is Home Depot. Home Depot reported strong growth in almost every key financial category and its comparable-store sales growth far outpaced that of Lowe's, which has been a common theme over the last several quarters. Also, its outlook calls for substantial growth and it will return over $7 billion to investors during the year via share repurchases and its very safe 2.35% dividend. Foolish investors should strongly consider initiating positions in Home Depot right now and adding to them on any weakness provided by the market.

Not sold on Home Depot or Lowe's? Check out this potential multi-bagger
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2973030, ~/Articles/ArticleHandler.aspx, 9/23/2014 12:48:09 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement