What's going on?

The two biggest home improvement retailers in America reported their second-quarter financial results over the past couple of days. Home Depot did reasonably well but its rival, Lowe�s, saw its stock punished (-6%) when it reported sales that fell short of expectations.

What does this mean?

One explanation for Lowe�s underperformance is that it is more geared towards seasonal products, e.g. it sells a lot of home & garden wares which are popular in the spring. Spring weather hit early in many parts of the US this year, which is perhaps why Lowe�s sales outperformed expectations in the first quarter but underperformed in the second (its stock is up more than 10% in the past year though). Home Depot, by contrast, reported sales that were in-line with research analysts� expectations, and it increased its own expectations for its full-year profit.

Why should I care?

The bigger picture: Home improvement has done way better than other retailers.

Both Lowe�s and Home Depot�s stock prices have done much better than other retailers (e.g. clothing/electronic retailers) in the past few years. But some of the traditional retailers are starting to see their stocks go up as they perform better than (quite low) expectations (e.g. Macy�s last week). The divergence between home improvement and other retailers might not widen much more, at least for now.


For the stocks: Strong house prices and limited competition from online retailers have helped Lowe�s and Home Depot over the past few years.
Spending on home improvement tends to increase when property prices go up. For example, people are more likely to renovate their homes when they feel they�re �investing� in something that�s appreciating in value. It has helped that home improvement isn�t an ideal area (yet) for online competitors (you can�t really ask Amazon how to install wood laminate). If either of these factors were to reverse, the environment for these retailers would get more difficult.