By spending more time at home, people finally embarked on these home improvement projects, which gave Lowe Cos. Inc. an increase in first quarter profits.
Lowe’s
LOW,
reported earnings and sales that far exceeded FactSet’s expectations, sending stocks up to 1.2% in trading on Wednesday.
“We serve large-scale project activities, from outdoor landscaping and other beautification projects to essential interior repair and maintenance and long-delayed house projects, the to-do list that customers had not previously approached due to his busy schedule, “said Lowe president and chief executive officer Marvin Ellison during the call for results on Wednesday, according to a transcript from FactSet.
The DIY category “slightly exceeded” that of the professional category, said Ellison.
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“Towards the end of the quarter, consumers’ attention shifted to their gardens and our data shows a strong improvement in the number of people carrying out gardening projects and / or buying new outdoor furniture and accessories”, writes Neil Saunders. , managing director of GlobalData Retail.
“In our opinion, this is useful for Lowe’s because its garden center proposal is relatively strong. The collections and furniture for outdoor living have also been improved and the ranges are more attractive and presented in stores.”
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On the other hand, it lost its profit forecasts, but exceeded its sales.
“Professionals have undoubtedly been faced with headwinds against state mandates,” said William Lennie, executive vice president of sales and external services for The Home Depot, when calling the results of this company Tuesday, according to a transcript from FactSet.
“We have also had certain restrictions in the form of being unable to obtain permits or conduct workplace inspections so that they can continue with their projects. And finally, there were headwinds with owners who were simply reluctant to have teams working at home when they were protected on site. “
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Still, Home Depot executives say the professional and DIY businesses had a good presentation.
The Home Depot predicts that these professional projects have simply been delayed.
“[I]In our own service business, which is one of our best professionals, we don’t see a high rate of job cancellations, “said Craig Menear, CEO of The Home Depot. It’s just a carryover. The client wish them to continue. “
The Home Depot has suspended its financial direction.
However, analysts have different predictions of what will happen in the future home improvement category due to the uncertainty surrounding the coronavirus pandemic and the impact on the economy.
“The profitability and duration of the economic downturn and the housing market could determine whether confidence will revive big projects,” wrote Wedbush analysts led by Seth Basham in a note on The Home Depot.
“The rapid recovery in the housing market and continued growth in house prices in most regions (particularly in the suburbs where many city dwellers are fleeing) could support demand better than we had anticipated, but the explosion of DIY projects will likely improve as “the economy reopens”.
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Wedbush estimates that Home Depot’s stock is neutral and raised its 12-month price target to $ 230 from $ 200.
“Although this quarter’s sales probably benefited from the impact of homeowners stuck in the house and participating in home improvement projects, we consider that at least part of this demand is progressive,” to pay ” in T2 to Q3, as economies reopen, consumers begin to return to their workplaces and the benefits of stimulus begin to fade, “Bank of America analysts wrote in a Home Depot note. .
Bank of America values Home Depot stocks at a neutral price of $ 250, above $ 238.
Wells Fargo analysts are optimistic about the impact of the reopening of states at The Home Depot, with the resumption of these major projects.
“Overall, we continue to rank the home improvement category as one of the highest quality in retail, and we believe Home Depot is accelerating its market share during the pandemic as omnichannel sales gain in shares and in subscales. they lose ground “, wrote analysts directed by Zachary Fadem in a note.
Wells Fargo assesses the overweight in Home Depot stocks and raised its target price to $ 260 from $ 260.
Lowe needs to strengthen relationships with the professional community, said Saunders of GlobalData, although he says the retailer is “in a good position” and that CEO Ellison and his team initiated effective business change before the pandemic.
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“[W]I warn that many new buyers are not hungry for renovations and will only buy occasionally, “said Saunders.
“As such, one of Lowe’s jobs will be to make him more of a regular buyer, which may mean more to shift to seasonal and sweeter assortments, something we’ve always argued that Lowe should do to differentiate yourself from Home Depot. “
Lowe’s shares rose 0.1% on Wednesday but rose 5.3% in the past year. The Home Depot was break even on Wednesday and has increased 24.4% in the past 12 months. And the Dow Jones Industrial Average
DJIA
It has dropped 5% in the past year.