Home Depot & Lowes Conference Calls
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Both companies benefited from better than expected weather, particularly in the north and northeast, and both noted the weather pulled sales forward. This, however, is where the similarities in the calls ends. Home Depot talked down the second quarter saying the second-quarter comps should be lower than the first-quarter comps and that the second quarter would be the lowest comping quarter of the year. Lowe's on the other hand, while lowering their full year earnings guidance a tad, reiterated its 1%-3% comp sales for next quarter.
Moreover, the tones on the calls were completely different. Home Depot touted the gross margin expansion from their supply chain transformation. Adding distribution centers has allowed Home Depot to be more efficient at getting product to stores and has allowed them to get lower prices from manufacturers by ordering centrally. Also, Home Depot boasted higher customer satisfaction scores from better training of associates and better use of in-store technology. Overall, Home Depot seemed to be hitting on all cylinders while waiting for macro-economic trends to swing back into their favor.
Lowe's, on the other hand, is still fumbling through its restructuring. First, it appears as though Lowe's decision to be less promotional, especially on large ticket items like appliances, was met with resistance from consumers. Moreover, the product line review, started last November, is now about a third of the way complete. The process, aimed at stocking stores with the right products from the right suppliers has hit some snags. While the store reviews continue on schedule, the implementation of changing over the stores after the review is complete is taking much longer than expected (120 days versus 90 days). That is, stores are finding it difficult to clear old products and reset the stores with the new products, signage, and displays in the 90 days. No color was given on which aspect in particular was taking longer than anticipated, but my educated guess is on clearing the old merchandise. Moreover, there appears to be more changes behind the scenes after losing/cutting 526 corporate office employees through a voluntary separation program. Although this is the correct move in the long-term, in the short-term, it is more moving parts the company must keep its eye on. Overall, my feel from the call was that while Lowe's was making choices to better their competitive advantage, they were still steps behind Home Depot.
In closing, neither stock looks worth owning at this point. Home Depot telegraphed a hard quarter, and aside from their Investor and Analyst Conference on June 6, I don't see many catalysts that would cause the stock to outperform this summer (I do not expect consistent up-side surprises in housing numbers.). However, if the stock is depressed into earnings, I would be a buyer. Similarly, Lowe's should under-perform this summer. Unlike with Home Depot, I do not believe Lowe's prepared investors enough for a possible awful second quarter, and thus, I would stay away going into earnings next quarter.
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