Lowe's Growth Woes

This morning's results from home-improvement giant Lowe's (NYSE:LOW) proved to investors that Home Depot (NYSE:HD) isn't the only one seeing challenging sales and earnings trends. The thousand-dollar question on Fools' minds is, when might conditions improve?

Not anytime soon, it appears. In addition to reporting a 6.3% drop in first-quarter same-store sales and a more severe 12.1% fall in earnings, Lowe's lowered expectations for the full year to $1.99-$2.03. Management cited a number of reasons for the woeful results, "including a difficult housing market in many areas, tough comparisons to hurricane rebuilding efforts, and significant lumber and plywood price deflation [that] continued to create a challenging sales environment in the first quarter."

Total quarterly sales eked out a 2.1% gain, as Lowe's still has plenty of domestic expansion opportunities, especially compared to Home Depot's more mature store base here at home. For those keeping score, Lowe's orange DIY rival posted a 0.6% gain in total sales, but its retail operations reported a 4.3% drop in the top line. El Depot also just lowered its full-year expectations after reporting depressing first-quarter results.

On a more positive note, Lowe's expects conditions to improve as the year progresses. It is picking up market share thanks to new store openings and also expects to see easier comps "in the back half of the year." It also reported an increase in first-quarter operating cash flow as compared to last year's quarter.

All in all, though, it sounds pretty grim. So why consider investing in either Lowe's or Home Depot? For me, it's a combination of solid cash flow generation, reasonable valuation, and still-strong long-term growth prospects -- both companies combined only control about 20% of the $700 billion home improvement market.

That may sound small, but both companies have grown to dominate their home-improvement retail categories -- much like Costco (NASDAQ:COST) in the discount warehouse space, Best Buy (NYSE:BBY) in electronics, and Target (NYSE:TGT) and Wal-Mart (NYSE:WMT) in general merchandise. It may not seem like much now that a difficult housing market and subprime worries are hammering sales, but could make for an appealing investment opportunity if conditions end up improving down the road.

For related Foolishness:

• The Best Stock to Own
• The Housing Slump's Long Reach
• Warren Buffett's Priceless Investment Advice

Home Depot and Wal-Mart are Motley Fool Inside Value recommendations, while Best Buy and Costco are Motley Fool Stock Advisor picks.

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.