Rebuilding at Home Improvement Stores?

Second-quarter results are now in from Lowe's (NYSE: LOW  ) and Home Depot (NYSE: HD  ) , and while they weren't pretty, life finally may be starting to get easier for the two big-box home improvement retailers.

On Monday morning, Lowe's reported a sturdy 2.4% sales increase as new store openings were able to offset a 5.3% decline in same-store sales. The final top-line figure came in ahead of management's expectations, cushioning the hit to the bottom line, with diluted earnings falling only 4.5% to $0.64 per share -- ahead of what analysts were calling for.

As has been the case, Home Depot is struggling more than its archrival. Underinvestment in its store base and a more saturated national store base again contributed in the second quarter, as sales fell 5.4% and comps fell 7.9%. The bottom line for continuing operations fell 7.8% per share, but aggressive buybacks helped tremendously, as actual earnings fell 24% from last year.

Neither company is out of the woods yet -- Lowe's still expects earnings to fall a little more than 18% for the year, with sales inching up just 1%. Home Depot is still predicting a 24% drop in continuing earnings on a 5% sales decline for the year. This could still change -- Home Depot has already aggressively cut its store expansion, to the tune of 50 stores, while Lowe's revised its original expansion plan from 140 stores to 120.

Less capital spending on new stores would definitely improve cash flow and may be the smart way to go until the housing market returns to something more normal and consumers go back to bigger-ticket home improvement projects and purchase Black & Decker (NYSE: BDK  ) power tools, Whirlpool (NYSE: WHR  ) appliances, and Mohawk Industries' (NYSE: MHK  ) flooring and carpeting.

But as it stands, both companies are weathering the mortgage meltdown just fine and remain firmly profitable. Still, it remains to be seen just when, or if, they will return to their heydays of consistent sales and earnings growth.

Home Depot is a Motley Fool Inside Value recommendation. Give your portfolio a makeover with the newsletter service, free for 30 days.

Fool contributor Ryan Fuhrmann is long shares of Lowe's and Home Depot, 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 (2)

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: 710041, ~/Articles/ArticleHandler.aspx, 9/1/2014 8:07:25 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