With many people lacking the means to travel this year, the "stay-cation" has become a destination of choice. But sitting around dreary digs is no picnic, either, leaving stay-at-homers one alternative: Spruce up the place you've got.
The earnings reports for home-remodeling centers Lowe's (NYSE:LOW) and Home Depot (NYSE:HD) both seem to suggest that consumers who can't afford to jet to someplace more picturesque are spending money to fix up their homes. This flirtation with a spring fling, rather than consumer splurges on big-ticket items, was the foundation for retailers' hopeful news.
Lowe's said that sales of gardening supplies and other outdoor-project goods helped it to nail a profit of $0.32 a share in the first quarter, better than the $0.25 analysts had expected. Its revenue declined 1.5%. Perhaps we should have been able to divine that result at the end of April, when Scotts Miracle-Gro (NYSE:SMG) reported a 33% increase in net income on flat sales.
While Home Depot reported a 44% increase in earnings, much of its profit was driven by aggressive cost-cutting measures. It cut 7,000 jobs, froze pay, and closed underperforming stores, including its Expo design chain. Sales there were off by 10%.
These retailers hope that the recession has reached bottom; while consumers remain cautious, the companies expect the rest of the year will be slightly better. Lowe's, for example, raised its earnings guidance for the fiscal year to a range of $1.13 to $1.25 per share, from its previous forecast of $1.04 to $1.20 a share.
But I wouldn't bet the farm on it. The Commerce Department said housing starts fell 12.8% in April, a blow to economists who had anticipated a slight increase in the numbers. Plus, applications for new project permits fell by more than 3% in the month.
Homebuilders such as D.R. Horton (NYSE:DHI), Pulte (NYSE:PHM), and Centex (NYSE:CTX) remain pressured by the glut of inventory still available. A volatile mixture of foreclosures, tight credit, and high unemployment are providing further headwind. While some builders may report that their own losses have narrowed, the markets in California, Florida, and Nevada are still reeling from housing's collapse, and we can't expect Home Depot or Lowe's to climb out of their pit any time soon.
Still, consumers are spending around the edges. It doesn't really cost much to plant some flowers and improve the curb appeal of your property, as opposed to undertaking a major renovation. Rosy expectations for the hardcore D-I-Y market will have to be put off, since neither home improvement retailer is really building much sales momentum for the coming months.
There will be better opportunities to pick up shares of Lowe's and Home Depot. Until then, you can just laze around in your hammock, sipping a mint julep, and biding your time.
Further constructive Foolishness:
- Wall Street upgraded home retailers, really?
- Fool analyst Rich Smith takes on the Street upgrades
- Is This the Next Incredible Buying Opportunity?
