Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Lowe's Grows Despite Housing Woes

It's no surprise that Lowe's (NYSE: LOW  ) is struggling.

Housing woes abound, and it has been a tough ride for home improvement retailers this year. However, the good news for Lowe's is that it doesn't seem to be struggling quite as much as its larger orange archrival, because it's requiring less renovation to weather this industry storm.

Lowe's reported second-quarter results Monday morning: Total sales increased just south of 6% as it opened 26 new stores, which included two store relocations. Negative same-store sales of 2.6% took a bite out of the total, but came in only half as bad as Home Depot (NYSE: HD  ) , which just reported a 5.2% drop in quarterly comps.

During the earnings conference call, management cited particular difficulties in markets where housing became especially "stretched," such as California and Florida. There were negative double-digit comps in Florida, making it among the worst regions where Lowe's does business. And not surprisingly, company officials can't predict when conditions will improve and expect challenges to continue through at least the end of the year.

Strong sales in the Northeast, in states such as Texas and Oklahoma, and in the paint, nursery, and patio product categories weren't enough to offset the negative top-line trends. Lowe's also cited significant plywood and lumber deflation, as large homebuilders, including Toll Brothers (NYSE: TOL  ) , Pulte (NYSE: PHM  ) , and DR Horton (NYSE: DHI  ) , try to adjust to the plummeting demand for new homes.

Lowe's still managed to post a 12% improvement in diluted earnings and repurchased $1.5 billion in stock, "deleveraged" the payroll, and kept a tight lid on other costs as it waits for the macro-environment to improve. Again, this stood in stark contrast to Home Depot's 14% drop in second-quarter profits. And while Home Depot expects a 15% to 18% drop in full-year earnings, Lowe's expects flat year-over-year growth.

Lowe's second-quarter earnings handily beat analyst projections, and the stock traded up around 6% as a result. The forward P/E is now approaching 15, which is slightly above what Home Depot is trading at. As a final comparison of the two leading home-improvement chains, Lowe's is more of the growth play because it has plenty of room to open new stores and is still posting overall sales and earnings improvements. Home Depot is more of the turnaround story because it's paying for years of underinvestment in its store base.

In my mind, both look interesting now and are still generating ample cash flow with which to maintain existing stores, open new ones, pay dividends, and buy back stock. And the going should get easier once the housing market recovers and consumers are less hesitant to take on more expensive home improvement projects.

For related Foolishness:

Home Depot is a selection of theMotley Fool Inside Value newsletter. Want to find out which inexpensive moneymaking machines subscribers are snapping up today? Be our guest for the next 30 days.

Fool contributor Ryan Fuhrmann is long shares of Home Depot and Lowe's, but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.

Read/Post Comments (0) | Recommend This Article (3)

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.

Compare Brokers

Fool Disclosure

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: 534272, ~/Articles/ArticleHandler.aspx, 5/30/2016 12:51:20 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...

Today's Market

updated 2 days ago Sponsored by:
DOW 17,873.22 44.93 0.00%
S&P 500 2,099.06 8.96 0.00%
NASD 4,933.51 31.74 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/27/2016 4:01 PM
LOW $80.35 Up +0.19 +0.00%
Lowe's CAPS Rating: ****
DHI $30.58 Down -0.01 +0.00%
D.R. Horton, Inc. CAPS Rating: ***
HD $133.94 Down -0.11 +0.00%
Home Depot CAPS Rating: ****
PHM $18.86 Down +0.00 +0.00%
PulteGroup, Inc. CAPS Rating: ***
TOL $29.15 Up +0.25 +0.00%
Toll Brothers, Inc… CAPS Rating: **