Home Depot Beats Expectations; Now What?

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Home Depot (NYSE: HD) reported higher quarterly sales and earnings figures this week. The strong results were due in part to the housing market recovery that is slowly gaining momentum. This article will provide an overview of the company’s quarterly results and the 2013 outlook for Home Depot and some of its competitors.

Home Depot’s first quarter earnings

Home Depot is the nation’s largest home improvement retail chain. The company announced quarterly results this week that beat the expectations of many Wall Street analysts. For the retail outlet’s quarter that ended May 5 Home Depot earned $1.23 billion – $0.83 per share. This is an increase from $1.04 billion ($0.68 per share) for the same period in 2012.

This beat a consensus of analysts’ expectations of $0.76 per share. Moreover, net income was up 18% and this is due in part to the housing recovery that was seen in the Case/Schiller index earlier this year. CEO Frank Blake reportedly said “While weather negatively impacted our seasonal and exterior businesses, our core interior project business remained strong throughout the quarter.”

“This was encouraging and consistent with the views that the housing market is starting on the path to recovery,” said Blake.

The key words in that quote are core interior project business. Home Depot’s strong quarter is not only a reflection of an uptick in the housing market, but also strong demand in the Northeast as homeowners are rebuilding in the wake of Super Storm Sandy.

In sum, Home Depot’s first-quarter net income rose 18%. Revenue for the company was also up by 7% to $19.12 billion from $17.81 billion – analysts expected $18.62 billion. This is critical since improved revenues are necessary for future growth. Home Depot’s solid revenue numbers are the result of gains in the outlet’s online business which accounted for 4.3%.

And the outfit’s outlook for fiscal 2013 now is earnings of $3.52 a share, with revenue up about 2.8 percent. Previous guidance was for earnings of $3.37 a share, with revenue rising about 2 percent. This new outlook hints at revenue of $76.83 billion, based on 2012’s $74.75 billion. Since the good news was announced, shares rose by about 2.5%.

Lowe's misses the mark

Lowe's Companies (NYSE: LOW) reported a weaker-than-expected quarterly profit that was apparently affected by a cold and rainy spring as well as strong competition from its rival Home Depot.

Lowe's sales fell 0.5% to $13.09 billion in the first quarter ended on May 3, missing the analysts' average estimate of $13.45 billion. It was the 16th straight quarter that Lowe's posted weaker same-store sales than Home Depot. But Lowe’s apparently stocked more lawn and garden products than Home Depot while that outfit was selling boatloads of sheet rock, lumber and other building material in the afflicted Northeast corridor.

Meanwhile Lowe's has been working to improve product selection and customer service by offering daily low prices and products targeted to specific geographic markets. The retail home improvement chain has also reportedly increased its assortment of products available online. However, Lowe's was slow in cutting costs in the wake of the housing meltdown compared to Home Depot.

Lowe's reported first-quarter profit missed analysts’ estimates as its same-store sales fell about 10% in March. But the April numbers were up by 10%, so performance is improving. In short, the company’s net income for the quarter was up by 2.5% to $540 million, or $0.49 a share - analysts projected $0.51. Finally revenue fell 0.5% to $13.1 billion - an indicator of slower growth going forward if not stormy weather.

Lumber Liquidators raises 2013 outlook

Lumber Liquidators (NYSE: LL) put up numbers toward the end of April for the first quarter that ended on Mar. 30. The company’s line is a bit different than Home Depot and Lowe's as Lumber Liquidators is the largest specialty retailer of hardwood flooring in North America.

Net sales increased $42.4 million, or 22.5%, to $230.4 million in the first quarter of 2013 from $188.0 million in the first quarter of 2012. Net store sales increased 15.2% for the quarter, partly owing to the company opening five new stores during the first quarter of 2013. This differentiates Lumber Liquidators from Home Depot since that outfit has not been opening new stores while opting for a push into the Internet.

In sum, the hardwood flooring king’s net income increased by 2.5% to $15.8 million, or $0.57 per diluted share, in the first quarter of 2013 - from $8.2 million in the first quarter of 2012. Based on these results, the Company expects net sales for 2013 in a range of $914 to $942 million as a total of 25-30 new stores will open.

The bottom line

Both Home Depot and Lumber Liquidators should be good buys for the rest of 2013 as the housing market recovery will pick up. As for Lowe's, to borrow a phrase, you don’t need a weather man to know which way the wind blows.

Kyle Colona is a freelance writer from the New York area with a broad background in legal and regulatory affairs in the finance sector. His extensive body of work is accessible on the web. Mr. Colona is not a financial advisor and he does not hold a position in the stocks mentioned herein. This article is for informational purposes only and should not be construed as financial advice.

The Motley Fool recommends Home Depot, Lowe's, and Lumber Liquidators. The Motley Fool owns shares of Lumber Liquidators. 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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