Bloomberg News

Home-Renovation Spree Allays Concern Housing Rebound Slowing (1)

February 26, 2014

America’s renewed zeal for home renovations is here to stay.

Both Home Depot Inc. (HD:US) and Lowe’s Cos. topped their initial sales forecasts for last year, benefiting from consumers’ eagerness to invest in their homes. The results helped alleviate concern that a slowdown in the housing market’s rebound and sluggish job growth would quell demand for appliances, flooring and paint.

“Some of the recent housing and jobs data has softened a little bit,” Lowe’s Chief Executive Officer Robert Niblock said in an interview. “But we still think the consumer is going to be there, and 2014 is going to be a great year.”

Home Depot, the biggest home-improvement chain, topped fourth-quarter earnings estimates yesterday, marking six straight years of meeting or beating projections. Sales rose 5.4 percent to $78.8 billion last year, more than twice the 2 percent growth rate the company had initially expected. While Lowe’s results were in line with estimates, the company forecast 5 percent annual sales growth today. That would be the second-highest increase of the past seven years.

The outlook adds to growing optimism that the housing market is regaining its footing. Purchases of new U.S. homes unexpectedly climbed in January, reaching the highest level in more than five years. The sales figures, released today by the Commerce Department, topped the highest estimate of economists surveyed by Bloomberg.

Northeast Gains

The Northeast housing market posted the biggest gains, with a 73.7 percent increase -- the largest jump since July 2012. Sales climbed 11 percent in the West and 10.4 percent in the South. They dropped 17.2 percent in the Midwest.

The housing strength defied concerns that winter weather would crimp sales. Last month was the coldest start to a year since 2011, according to the National Oceanic and Atmospheric Administration.

Lowe’s, which ranks second to Home Depot in the home-improvement industry, expects shoppers to continue opening up their wallets for larger renovations, Niblock said. For the past three quarters, purchases above $500 have been the biggest source of sales gains. In the latest period, those kinds of orders rose 8.9 percent, while purchases of $50 to $500 increased just 2.2 percent.

Niblock has added workers at the chain’s busiest times, aiming to capitalize on the surge in home upgrades. Big-ticket items for renovations sold better than Christmas gifts and decorations last quarter, the Mooresville, North Carolina-based company reported.

Consumers are buying things like appliances, flooring and fixtures, Niblock said.

‘Feel Better’

“They have been doing the ongoing maintenance, but now that they feel better about the value of their home and the overall economy,” he said. “They are starting to engage in some of this discretionary spending around the home that they had put on the back burner.”

Home Depot reported a similar trend last quarter: Purchases above $900 rose 5.5 percent, more than the total gain in same-store sales of 4.4 percent.

Shares of Atlanta-based Home Depot rose 4 percent to $80.98 after its earnings yesterday, while Lowe’s gained 5.4 percent to $50.72 today in New York.

Weather Challenges

Severe weather can be a mixed blessing for home-improvement chains since it spur sales of generators and repair equipment -- assuming customers can make it to the store. For Home Depot, heavy snowfall and cold weather hurt results last quarter and contributed to a sales decline in New York and New Jersey.

The unusually cold temperatures should help boost sales by spring, which is the company’s largest sales period of the year, Home Depot said yesterday.

The company expects the housing rebound to continue this year and serve as a “tailwind” for its business, CEO Frank Blake said on a conference call with analysts.

Still, the jobs picture has to improve before the company can put concerns about a slump behind it, said Carol Tome, Home Depot’s chief financial officer.

“The economic recovery is all about jobs,” she said in an interview. “If we are going to lose any sleep, it’s all about jobs.”

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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  • HD
    (Home Depot Inc/The)
    • $92.08 USD
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