By
Alyce Lomax
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February 23, 2011
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Even though home prices currently hover near 2009's lows, home-improvement retailers' quarterly results seemed to buck that ugly trend. Should investors hammer out a position in these stocks?
Home Depot's (NYSE: HD ) fourth-quarter earnings increased 72%, to $587 million, or $0.36 per share. Revenue rose 3.8%, to $15.1 billion, while same-store sales climbed 3.9%. Home Depot's 4.8% comps increase testified to its success in attracting customers -- a feat that rival retail giant Wal-Mart (NYSE: WMT ) has found woefully difficult for quite some time now.
Fellow home improvement rival Lowe's (NYSE: LOW ) reported a 39% jump in fourth-quarter net income to $285 million, or $0.21 per share. Revenue increased 3.1%, to $10.5 billion, and its comparable-store sales nudged upward by 1.1%.
But the appearance of improvement at Home Depot and Lowe's may be just a facade. After all, the housing market has been stagnating for years now; easy comparisons to yesteryear make both companies look a bit stronger than they are. Until this latest report, Home Depot hadn't posted a revenue increase since the year ended January 2007. Lowe's annual sales growth has averaged just 0.4% over the last three years, and just 2.5% over the last five years. That's not quite surprising, considering 2008's housing plunge.
Housing data doesn't look like a big growth driver for these companies going forward. Average home prices fell 4.1% in the last three months of 2010, and their plummet may not have ended yet. Robert Shiller of Case-Shiller fame predicted that home prices could fall 15% to 25% further. Although Toll Brothers (NYSE: TOL ) built up a surprise profit on rising sales in its first-quarter results, negative headwinds continue to buffet the homebuilding industry at large.
Such factors bode poorly for robust growth at Home Depot and Lowe's. Amid an ugly macroeconomic climate that doesn't portend a huge move toward upgrading houses, home improvement stocks still aren't hospitable for prudent investors.
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