Monday, August 20, 2007

Lowe's Earnings: Maybe It Is Not The Shopper?

In contrast the Home Depot's (HD) earnings last week, Lowes (LOW) reported today and the news was generally good.

Earnings rose 9% to $1.02 billion, or 67 cents a share, in Q2, up from $935 million, or 60 cents a share last year. Analysts had expected 61 cents a share, according to estimates. Sales also rose 5.8% to $14.2 billion due to the opening of 26 new stores. Sales at stores open at least a year fell 2.6%, in line with the company's expectations of a drop of as much as 3 percent. This is in contrast to the 15% decline in earnings at Home Depot.

Lowe's called the current environment "challenging" as the U.S. housing market depressed results in some areas, but said it had gained market share in 15 of 20 product categories (they did the same last quarter also). During a conference call Chairman Robert Niblock said, "There are signs of improvement in certain areas of the country,". The U.S. Northeast, he said was showing signs of improving sales in big-ticket installations. U.S. markets where housing hadn't accelerated much in recent years delivered positive same-store sales, Lowe's said. This is big. It means that in non-bubble areas they are thing are not desperate and Lowes in making big progress.

When one looks at this report one would be inclined to think we may be bottoming and there is light at the end of the tunnel while a look at the Home Depot call would lead one to think we are in a free fall. While I am not a buyer of either company right now, this earnings reports does cement in my opinion that Home Depot is years away from being a potential investment.

Lowes is managing through these tough times and taking market share from Home Depot quarter after quarter. When housing does turn around, Lowes will be in much better shape. When you look at the two you have to conclude Home Depot is just a mess and they aren't doing anything to lead one to think things will get any better anytime soon.

Lowes proved today that is is not necessarily the shopper but where the shopper decides to shop.

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