The green shoots were in full bloom today as Lowe’s reported their shocking “better than expected“ quarter. I’ll admit, I fully expected Lowe’s to beat the estimates, but these numbers were much stronger than even I expected. There is very little you can say about the Lowe’s quarter that was bad. Their revenues were strong, their cost controls were superb, margins expanded, etc. They reiterated a lot of what we’ve been hearing lately:
“Despite the difficult external environment, Lowe’s strong commitment to customer service and a compelling product offering led to continued market share gains in the first quarter and helped deliver sales within our guidance range,” commented Robert A. Niblock, Lowe’s chairman and CEO. “In addition, solid gross margin growth combined with appropriate expense management allowed us to deliver earnings per share above our guidance for the quarter.
“The economic pressures on consumers remain intense, and bigger ticket projects continue to be postponed as wary home improvement consumers watch the economic climate and housing market dynamics very closely,” Niblock added. “But, as spring arrived, we saw relative strength in smaller, outdoor projects.
“In recent weeks we have seen consumer confidence improve, housing turnover show signs of a bottom in certain markets, and home prices slow their decline,” Niblock continued. “These are all positive signs for the stabilization and ultimate recovery of home improvement industry sales, but since many of these variables remain at or near historic lows, we will continue to plan conservatively and manage expenses appropriately. Lowe’s remains focused on positioning the company for the future while maximizing opportunities presented today.”
Basically, housing is bad, the consumer is still weak, but the world isn’t going to get sucked into the credit black hole that everyone saw coming in early March.
What’s more interesting in the Lowe’s quarter is their “market share gains”. Lowe’s opened 21 stores during the quarter and continues to move in on Home Depot’s territory. Lowe’s is superbly run, has top notch management and has been gaining ground on Home Depot for years. So, the question I ask myself is: how much of this superb quarter at Lowes is due to a rebound in housing and how much is due to them beating the pants off of Home Depot at their own game?
We won’t know until tomorrow, but I fully expect to hear less optimistic news from Home Depot. But who knows, I’ve been wrong plenty of times before….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.