Wednesday, May 23, 2007

Home Depot (HD) vs. Lowes (LOW): Go With Oprah

With both home Depot and Lowe's reporting numbers in the past two weeks after the dust has settled, what should you do? After all, both have disappointed with earnings falling 29% for Home Depot (HD) and 12% for Lowe's (LOW). Both have lowered expectations for the remainder of 2007 and both stocks have been losers over the past year with investors seeing their investment flat lined. Now, eventually we all know that housing will turn around because nothing stays down forever and let's be honest, folks do need a place to live and there are more of us every year. There is built in demand here. Neither Home Depot or Lowe's will need to convince people they need to buy the products they sell, what they do need to do is convince them to get those products from them, not the other guy.

Enter Oprah. Probably the single most important endorsement a company or person can get today is one from Ms. Winfrey. The mention of a book on her show instantly makes it a best seller. A personal trainer or self help personality featured on the show will find their schedule instantly filled at whatever rate they demand. In short, if Oprah gives you the thumbs up, welcome to instant success. Love her or hate her, her impact is undeniable. You are probably asking yourself what this has to do with Home depot and Lowe's.

Oprah shops at Lowe's. This spring has featured various home improvement episodes like the most recent one in which Oprah did a favor for her neighbors by sprucing up their Chicago balconies. Who did the work and got essentially an entire show long infomercial and thumbs up from Oprah? Lowe's.

The effect of this can be seen in the latest earnings report from Lowe's when they reported that 17 of 19 company segments experienced market share gains during the last quarter and while customers are spending less per trip, more of them (to the tune of 5.9%) are choosing Lowe's when they shop. While this number may seem small, it is staggering when you consider Home Depot experienced a 20% drop in store traffic during the most recent quarter.

Eventually housing will turn and the big winner will be the one with the most customers, thanks to Oprah, that will be Lowe's.

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