Home Depot (HD 0.74%) and Lowe's (LOW 0.63%) are the two largest home-improvement specialty retailers in the world and both have recently released their first-quarter results. Let's compare their earnings results and outlooks on the rest of fiscal 2014 to determine which had the better quarter and could provide the highest returns for investors going forward.
Breaking down the financial results
Source: Home Depot
Home Depot released its first-quarter report before the market opened on May 20 and the results were mixed compared to analysts' expectations; here's a breakdown and year-over-year comparison:
| Metric | Reported | Expected |
|---|---|---|
| Earnings Per Share | $1.00 | $0.99 |
| Revenue | $19.69 billion | $19.95 billion |
Source: Benzinga
- Earnings per share increased 20.5%
- Revenue increased 2.9%
- Comparable-store sales data:
- 2.6% growth globally
- 3.3% growth in the United States
- Gross profit increased 3.1% to $6.89 billion
- Gross margin expanded 10 basis points to 35%
- Operating profit increased 8.7% to $2.28 billion
- Operating margin expanded 60 basis points to 11.6%
- Repurchased $1.25 billion worth of its common stock
- Paid $646 million in dividends
- Opened zero new stores, leaving its total store count at 2,263
- Other most notable update: Home Depot announced that it intends to repurchase an additional $3.75 billion worth of its common stock over the next three quarters, resulting in approximately $5 billion of repurchases for the full year.
Source: Lowe's
Lowe's released its first-quarter report before the market opened on May 21 and the results were mixed compared to analysts' expectations as well; here's a breakdown and year-over-year comparison:
| Metric | Reported | Expected |
|---|---|---|
| Earnings Per Share | $0.61 | $0.60 |
| Revenue | $13.40 billion | $13.91 billion |
Source: Benzinga
- Earnings per share increased 24.5%
- Revenue increased 2.4%
- Global comparable-store sales increased 0.9%
- Gross profit increased 4.5% to $4.76 billion
- Gross margin expanded 70 basis points to 35.5%
- Operating profit increased 8.7% to $1.07 billion
- Operating margin expanded 50 basis points to 8%
- Repurchased $850 million worth of its common stock
- Paid $186 million in dividends
- Opened four new stores, bringing its total store count to 1,836
- Other most notable update: Lowe's stated that "poor weather" greatly affected sales in the first quarter, but does not expect this to negatively impact its full-year growth expectations and noted that its performance has shown improvement in May.
What about the remaining three quarters?
Source: Home Depot
Following its strong first quarter, Home Depot reaffirmed its revenue growth expectations and raised its earnings per share guidance for the full year; here's what the company now expects to achieve:
- Earnings per share of approximately $4.42, up 0.9% from its previous guidance of $4.38
- Revenue growth of approximately 4.8%
Source: Lowe's
In its report, Lowe's reaffirmed most of its growth expectations, but raised its earnings per share guidance and reduced the numbers of stores it plans to open in fiscal 2014; here's the new outlook:
- Earnings per share of $2.63, up 1.1% from its previous guidance of $2.60
- Revenue growth of 5%
- Comparable-store sales growth of 4%
- The openings of 10 new home improvement stores and five new hardware stores, down from its previous expectations of 15 new home improvement stores and five new hardware stores
And the winner is...
After comparing the companies' quarterly results and outlooks on the rest of 2014, the winner of this match-up is Home Depot. Home Depot reported strong growth in almost every key financial category and its comparable-store sales growth far outpaced that of Lowe's, which has been a common theme over the last several quarters. Also, its outlook calls for substantial growth and it will return over $7 billion to investors during the year via share repurchases and its very safe 2.35% dividend. Foolish investors should strongly consider initiating positions in Home Depot right now and adding to them on any weakness provided by the market.
