Lowe’s and Home Depot Struggle in Tough Real Estate Market
The real estate community knows all to well that families are not buying homes like they used to. Now they arte not investing in their homes as much either.
Home Depot and Lowes both showed weak second quarter earnings results as consumers have scaled way back on their home repairs.
Lowes took the biggest hit:
The company announced that its $759 million in net quarterly earnings were 19 percent lower than at this time last year. Earnings per share were $0.51, compared to $0.63 during the second quarter of 2008.
For the first six months of 2009, net earnings were said to be down 20.1 percent to $1.23 billion, with diluted earnings per share having fallen to $0.84. Year over year sales for the second quarter were reported to be down by 4.6 percent.
Investors may have been particularly concerned by the company’s announcement that it was re-evaluating its future expansion plans in light of what appears to be lowered demand for home improvement products. A total of 35 to 45 new stores are still expected to open in North America in 2010. Business News.
Meanwhile, Home Depot’s earnings also fell, albeit only at 7.2%.
Results reflected still dismal business conditions for home-improvement retailers, given that the period’s sales were their lowest since 2003.
“It’s almost like you’ve stepped back into a time warp, and Home Depot’s numbers reflect that,” said Craig Johnson, president of consulting firm Customer Growth Partners. “From an economic point-of-view, this is not great news, but from a Home Depot shareholder perspective, given the economy, it’s doing well despite the erosion in the top line.” via WSJ
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Comment by David Orsini on 18 August 2009:
“Now they are not investing in their homes as much either.”
That is not necessarily true. Home Depot, like many other companies in various industries, operates under the 80/20 rule where 80% of their revenue comes from 20% of their clients. Home Depot has made a lot of money on contractors and developers. And those are the guys taking the big hit right now and spending less money with them. As far as Joe Homeowner going to buy some paint for a DIY project, Home Depot is actually doing better now than they were a year ago. That is actually why they changed their marketing campaign to the “More Savings, More Doing” campaign to appeal to the do-it-yourself homeowner projects. Now, that being said, that same homeowner cannot do a cash-out refi to get $50K to finish his basement like he could 2 years ago. But that is just a nature of the mortgage industry. I think since more and more homeowners know they are stuck for a while they are actually taking it upon themselves to make their home better and more livable. And that works out well for HD.