The country's second-largest home-improvement retailer, Lowe's (NYSE:LOW), reported first-quarter earnings today that signal strength in an industry nearing its peak. The North Carolina-based retailer had a better-than-expected quarter as it nailed earnings of $0.57 per share, which bettered last year's EPS of $0.53 and the consensus estimate of $0.54.
First-quarter sales were up 22%, keyed by a 9.9% increase in comparable-store sales. The company grew across all divisions, but really turned the screws in its outdoor power equipment and kitchen cabinet segments.
Lowe's earnings should serve as a foreshadowing to rival home-improvement retailer Home Depot (NYSE:HD), which reports its first-quarter numbers tomorrow. The news also should serve as a warning to fellow retailers Target (NYSE:TGT), Wal-Mart (NYSE:WMT), Circuit City (NYSE:CC), and Best Buy (NYSE:BBY) that consumers are starting to focus their spending on items that retain value.
Companies are increasingly mentioning skyrocketing gas prices and rising interest rates as huge factors in consumers' ultimate discretionary income. While these issues will undoubtedly make people nervous, I think that you are likely to see a more selective consumer, not a population of passive shoppers.
I also expect the retail environment to become even more competitive as retail companies fight for every available dollar. The constants are that houses will need renovation and appliances will break down, so consumers must spend money on basic necessities.
But, will consumers continue to dig deeper in their pockets for cosmetic changes and other nonessential upgrades? If gas prices climb toward $3.00 and Greenspan removes his finger from the interest rate dike, then that ugly green floral wallpaper might necessarily stay around a little longer. This could translate into slower sales growth and a more difficult earnings environment for Lowe's and other retailers.
Hankering to talk about home improvements? Head over to the Lowe's discussion board.
Fool contributor Phil Wohl spent more than 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.
