Lowe’s still lags Home Depot on execution

May 26 08:02 2015

Lowe’s on Wednesday reported earnings and revenue that fell short of analysts’ expectations, sending its stock skidding. Lowe’s, the No. 2 U.S. home improvement chain by sales, is gathering momentum, but its execution is not up to par with larger rival Home Depot, said JPMorgan Chase analyst Chris Horvers. On Tuesday, Home Depot reported earnings and revenue that topped estimates. Horvers chalked up 70 percent of the disparate performance to execution and 30 percent to location.Lowes_Wauwatosa_Web2

“Home Depot not only has to sort of screw up to open a door to Lowe’s, but when you go to Lowe’s you have to have a good experience to want to go back there,” he said. As for location, Home Depot’s business is focused in markets where housing is rebounding more robustly, including California, Florida and Nevada, Horvers added. Lowe’s posted first-quarter earnings of 70 cents per share, as an improving job market encouraged Americans to spend on renovations. Revenue increased to $14.1 billion from $13.4 billion a year ago.

But Wall Street forecast home improvement retailer Lowe’s would report 74 cents a share in earnings on $14.28 billion in revenue, according to a consensus estimate from Thomson Reuters. After the earnings announcement, the company’s shares more than 5 percent in premarket trading.  Total same-store sales rose 5.2 percent. Analysts on average had estimated a 6.1 percent rise, according to Consensus Metrix.

Horvers noted that Lowe’s is only trailing Home Depot’s comps sales growth by about 100 basis points, compared with a 200- to 300-point deficit in past quarters. The company is also getting its house in order and outperforming Home Depot at moving big ticket purchases such as kitchen and bath materials and appliances, he said. However, Home Depot is hot on its trail. “The market is coming their way, but Home Depot is not standing still, and as the consumer goes more toward big ticket, particularly decorative, Home Depot is putting a lot of dollars behind that to go after where the consumer is heading,” he said.