Home improvement giants can still help you

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Home improvement retailers aren’t done getting better yet.

Lowe’s Cos. Inc. said Wednesday that comparable sales rose 5% in the quarter ended Jan. 28 from a year earlier, well above Wall Street expectations of 3%. Its earnings per share of $1.78 also beat estimates. This follows strong results at its larger counterpart, Home Depot.,

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which saw comparable sales grow 8.1% in its most recent quarter. So far, there are no signs of slowing demand for their wares, with Lowe’s reporting stronger year-over-year sales growth in February compared to January.

Both companies said sales to professional customers such as general contractors and plumbers were growing at a faster rate than those to DIY customers. Lowe’s said sales to professionals rose 23% in the latest quarter from a year earlier. In the early stages of the pandemic, more people engaged in DIY projects and feared bringing in contractors; this trend is now reversing as more and more homeowners are bringing in professionals to carry out renovations and repairs.

Helping to fuel change, clients who started projects on their own could turn to professionals to see them through. In a survey released last month by Lowe’s, many homeowners said they later regretted tackling complicated DIY projects.

Lowe’s has updated its guidance for 2022; it now expects comparable sales to be down 1% to 1% up from a year earlier. The Home Depot said Tuesday it expects comparable sales growth to be mildly positive. While those numbers sound disappointing on their own, they’re impressive considering Lowe’s has increased net sales by a third since 2019 and Home Depot by 37%. Before the pandemic, Lowe’s five-year compound annual growth rate for sales was a more moderate 5.1%, while for Home Depot it was 5.8%.

Absent significant disruption to the economy, conditions remain favorable for home improvements, with more workplaces moving to permanent hybrid or work-from-home arrangements. The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major U.S. metropolitan areas, rose 18.8% in the 12 months to December. . While higher interest rates may temper demand for homes, Lowe’s said it doesn’t expect it to dampen home improvement. David Denton, chief financial officer of Lowe’s, said the sector has always experienced solid growth when interest rates have risen in a strong economic environment. In any case, about two-thirds of Lowe’s business comes from repair and maintenance, necessity-driven categories that should bring business in all economic circumstances.

With growth slowing, one thing to watch is whether the home improvement chain giants can continue to take market share from smaller players. Supply chain disruptions and costs have allowed large-scale companies to find customers based on product availability. Even among the two giants, the advantages of scale are clear: Home Depot’s inventory rose nearly a third in its quarter ended Jan. 30 from a year earlier. Lowe’s inventory grew 8.7%, even after expanding warehouses on the coasts.

With the market largely in a downturn for 2022, both companies’ share prices are down from their respective highs reached in late 2021. Home Depot was down a quarter while Lowe’s was down 16%. As a multiple of forward earnings, their stocks are now cheaper than they were at the end of 2019. By the same metric, the S&P 500 is now around the valuation levels seen at the end of 2019. of 2019. Yet both companies are arguably much more efficient and profitable businesses than they were pre-pandemic with higher margins.

Investors looking for repairers with insane upside potential will no longer find it at home improvement retailers. But those looking for a stable base with little risk of wear and tear can still find it at a reasonable price.

Write to Jinjoo Lee at jinjoo.lee@wsj.com

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Appeared in the February 24, 2022 print edition under the title “Tough Home Improvement Giants Can Still Grow”.

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