A late spring and a particularly wet month of February didn't bode well for the two major home improvement retailers.
The Home Depot on Tuesday reported that net sales rose 5.7% to $26.4 billion, up from $24.9 billion in the year-ago quarter. Company-wide comp sales rose 2.5% and U.S. comp sales rose 3%. Results missed due to declining lumber prices and the fact that "February was the second wettest on record for the U.S.," CEO Craig Menear said on a conference call with analysts, according to a Seeking Alpha transcript.
Telsey Advisory Group analysts predicted same-store sales would increase 4.5%, while FactSet's consensus was 4.2%, according to a note emailed to Retail Dive. Net earnings were $2.5 billion, up from $2.4 billion in the year-ago quarter.
Aside from a relatively wet start to the year, GlobalData Retail Managing Director Neil Saunders said the economy was also partially to blame for the results.
"The consumer economy was also more unfavorable than last year, when tax cuts, good tax refunds and generally high confidence were all boosting spend," Saunders said. "While shoppers are far from being in the doldrums, the prevailing attitude now is more cautious and careful."
But as a whole, the home improvement sector has been more resilient than other categories also affected by cautious consumer spending. "Much of this is down to the continued willingness of people to invest in their homes and the relative robustness of the housing market – where activity levels remain good," he added.
Meanwhile, Lowe's on Wednesday reported that net sales increased 2.2% to $17.7 billion from $17.4 billion in the year-ago quarter. Company-wide comp sales increased 3.5%, while U.S. comp sales rose 4.2%, beating analyst expectations due in part to "a greater focus on the Pro, and process improvements," according to an analyst note from Telsey Advisory Group emailed to Retail Dive. Telsey analysts predicted comp sales would increase 3%. The company also reported that net earnings in the quarter were $1.05 billion compared to $988 million in the year-ago period.
While wet weather still hindered Lowe's in the first quarter of its fiscal year, Saunders said that comparatively, the retailer "was able to buck this trend" because of "the various improvements it is making as part of its retail fundamentals framework." But according to Saunders, it's important to note that while first quarter results for the two home improvement retailers were negatively impacted by the unfavorable weather, "much of this spend is merely delayed and tends to get pushed into other periods."
Lowe's also announced changes to the plan regarding its Mexico operations. The retailer in November announced it would be exiting its Mexico business and had plans to sell its operating business. However, on Wednesday, Lowe's announced that it instead decided to sell the assets of that business, which resulted in an $82 million tax benefit in the first quarter. "The tax benefit offset $12 million of pre-tax operating costs for the Mexico retail operations in the quarter," the company said.
The investment Lowe's has made in Craftsman might also build its credibility among professional customers, Saunders said. However, more work needs to be done in order for it to better compete with its larger rival, Home Depot.
"Once there has been a significant improvement across all categories we believe there is a further opportunity for Lowe's to build out its customer base by capturing new shoppers," Saunders said. "This is arguably more challenging as it will involve, at least in part, going head-to-head with Home Depot."
