Earnings Are Increasing in This Industry

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The earnings season for the Specialty Hardlines kicked off on Feb 25. as Lowe’s Companies reported its 4Q earnings. As far as the entire 2013 is concerned, there is a mixed outlook on this sector. Where weather sensitive companies are likely to feel some pain around the tough compare, up-market and housing-related retailers are expected to fare best. Let’s have a look at four stocks that are reported in the last week of Feb.

Lowe’s (NYSE: LOW)

Lowe's is a home improvement retailer that distributes building materials and supplies through stores in the United States.

The company reported an EPS of 26 cents. The beat was supported by favorable DIY vendor trends that have been robust, accelerating to 4% in 4Q12 from 3% in 3Q12. Also, it won’t be wrong to say that, based on better vendor color, the sales forecasts for 2013 could prove conservative. The stock's strong recent performance suggests enthusiasm for housing exposure, and little tolerance for the month-to-month volatility likely associated with tough weather-related compares. But the stock remains modestly valued relative to long-run potential, and the Street sees momentum in headway in line reviews with vendors.

RadioShack (NYSE: RSH)

RadioShack operates a chain of retail consumer electronics goods and services stores located throughout the United States and Mexico, along with wireless phone kiosks in the US, and dealer outlets worldwide. The Company offers consumers wireless phone and other electronic products and services from national brands and exclusive private brands and wireless carriers.

Visibility remains low heading into 2013. Analysts look for clarity related to the mobility business, potentially better iPhone sell through related to better supply availability, the traction of new smart phone product launches from Samsung and other vendors. As important as current trends in 4Q, will be an introduction to the new CEO and an update on longer-term strategic objectives. Recent enthusiasm in the stock looks a bit overdone.

Home Depot (NYSE: HD)

Home Depot is a home improvement retailer that sells building materials and home improvement products. The Company sells a wide assortment of building materials, home improvement and lawn and garden products and provides a number of services.

The company reported a quarterly EPS of 68 cents which topped the Street’s estimates of 64 cents. The company topped the EPS estimate on the basis of recent strength in DIY results. Moreover, better sales growth is certainly feasible, given the strength of DIY (do-it-yourself) vendor results. The DIY supplier index accelerated to 4% in 4Q12 from 3% in 3Q12. A strong performance in the stock has taken valuation past the point that would imply compelling value based on the firm's own buyback model; however, little upside is seen in the short-run.

Vitamin Shoppe (NYSE: VSI)

Vitamin Shoppe sells vitamins, minerals, herbs, supplements, sports nutrition and health and wellness products. The Company sells their products through their retail shops, internet and catalog operations.

The company posted SSS growth of 9.6%, which was much larger than the estimated 6.3% in 4Q. The beat was supported by the firm's store maturation curve, and industry data showing strong 2012 trends held up well in 4Q. The start-up costs associated with two new stores in Canada (the chain's first international stores) and a new distribution center are expected to drive costs higher than that embedded in consensus forecasts; The company reported an EPS of 55 cents on Feb. 26 which topped the analysts’ estimates of 51 cents. The management had a good story to tell alongside 4Q results, as the firm is only now beginning to pursue a promising global expansion and refocus on private brand development.

Foolish Bottom-Line

The 4Q earnings review tells us that the outlook for different retailers is indeed a mixed one. Some are expected to see upside in the near future while others may lack enough volatility to attract investors.


AnalystX has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Lowe's. The Motley Fool owns shares of RadioShack. The Motley Fool is short RadioShack. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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