As the housing market heats up, investors are keeping an eye on both companies, expecting sales to pick up as consumers initiate long-delayed home renovations. Building permits are up, signaling an anticipated increase in new home construction, which means sales of building materials will be on the increase all around.
Cool Weather Slows Progress
So it came as no surprise recently when The Home Depot, Inc. (NYSE:HD) posted higher earnings than expected, revealing an 18 percent increase in first-quarter net income. The company raked in $1.23 billion for the quarter, a fact that was attributed to the improving housing market.
However, The Home Depot, Inc. (NYSE:HD) was quick to add that this growth was in spite of cooler-than-usual weather. Many consumers and builders wait until warmer temperatures to begin construction projects, With parts of the country experiencing a surprise snow and ice storm in April, Home Depot saw sales only improving in late April and early May.
Lowe’s Companies, Inc. (NYSE:LOW) also cited cool weather in its earnings report. Unlike The Home Depot, Inc. (NYSE:HD), Lowe’s Companies, Inc. (NYSE:LOW) reported a reduction in same-store sales of .7 percent, compared to The Home Depot, Inc. (NYSE:HD)’s nearly five-percent increase. In addition to enduring snowstorms, Lowe’s Companies, Inc. (NYSE:LOW) is also in the process of reviewing product lines and merchandising to stay competitive.
Both retailers show optimism about the summer season, noting that sales began to pick up as soon as the harsh winter weather moved out. As the economy picks up, shareholders may be happy to find consumers playing catch-up, spending money to refurbish bathrooms and install new countertops now that money is once again available.
Home Decor Stock
The increase in the housing market means consumers will need items to fill new homes with. As homeowners head out to purchase everything from new shower curtains to trash cans, retailers like Wal-Mart, Target, and Bed Bath & Beyond Inc. (NASDAQ:BBBY) will benefit from these shopping sprees.
Bed Bath & Beyond Inc. (NASDAQ:BBBY) is already on the rise, recently reporting a 14-percent increase in its fourth quarter. The company cautioned, however, that its current quarter might not show such fruitful results. One analyst cited low margins on online sales, a growing part of Bed Bath and Beyond’s monthly business, as a reason to keep expectations low.
Competition from lower-priced retailer Wal-Mart will likely also continue to impact Bed Bath & Beyond Inc. (NASDAQ:BBBY)’s business. The company has done well during the recession, as budget-strapped consumers sought to save money. However, an improvement in the economy likely won’t have most consumers rushing out to spend more. Wal-Mart is still the biggest non-Internet retailer in the world, commanding 25 percent of America’s grocery budget, according to Forbes magazine.
The Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW) will likely continue to battle it out, alongside smaller hardware retailers like Harbor Freight and Ace Hardware. For each retailer, it will be important to provide quality customer service and a large selection of the best products in order to stand out.
The article Housing Market Jump-Starts Home Improvement Retailers originally appeared on Fool.com and is written by Stephanie Faris.
Stephanie Faris has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond, Home Depot, and Lowe’s. Stephanie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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