Home Depot Expanding Lead over Lowe's on Multiple Fronts
- By Shudeep Chandrasekhar
The reason I love Home Depot (HD) and Lowe's (LOW) is because these two home improvement retail giants practically own this niche market. Not only will this allow them to dominate the industry into the foreseeable future, but the footprint, size and scale of their product portfolios will deter even the most aggressive onslaught of e-commerce, Amazon (AMZN) included.
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The intrinsic value of HD
But of the two, Home Depot seems to be rapidly gaining ground over Lowe's. The former's comparative store sales are showing strong growth over the past two years. The second quarter this fiscal marked Home Depot's 51st consecutive comps growth quarter in Mexico and the 19th in Canada. In the U.S., comps grew 5.4% during the quarter, and the company is now targeting system wide comps of 4.9% for the fiscal and 6.3% sales growth.
Craig Menear, CEO Home Depot Q2- Earnings Call :
" In the U.S., all three of our divisions posted positive comps in the second quarter led by our Western division. In all 19 U.S regions and top 40 markets saw single to double-digit comps in the quarter. Internationally, our Mexican and Canadian businesses had another quarter of solid performance."
This stellar comparable store performance has lead the company to post high single-digit growth for the last few quarters, and the trend looks all set to continue well into the next year.
Home Depot's online sales also seem to be gaining traction, with the company reporting 19% growth during the second quarter compared to the prior period. Online sales accounts for nearly 5.6% of total sales. Wal-Mart (WMT), for all its money muscle and the time it has had, only sees 3% of its sales coming from e-commerce.
With the housing market staying on the positive side, Home Depot and Lowe's can be expected to continue the good run they have had since the recession.
"The overall environment has been favorable for home-improvement stores because renovation spending is driven by housing prices, and they've continued to gain this year. The 20-city property values index increased 5.2 percent from May 2015 after climbing 5.4 percent in the year through April, according to S&P CoreLogic Case-Shiller data released last month."
- Bloomberg
So far, 2016 has been a mixed bag for Lowe's. The company beat Home Depot on the comps front during the first quarter, reporting 7.3% against Home Depot's 6.5%. During the second quarter, Lowe's reported 2% growth versus Home Depot's 4.7% growth. Lowe's expects comparable sales for the year to rise by 4% and Home Depot expects to post almost a percentage higher than that.
Though the difference looks small, Home Depot has been slowly running away from Lowe's quarter by quarter. There is already a near $30 billion difference in sales between the two, and the further that gap widens, the harder it will become for Lowe's to catch up with the market leader.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
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This article first appeared on GuruFocus.
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The intrinsic value of HD
