Housing

The Perfect Storm for Home Improvement Leaders

When housing prices are on the march higher, it is sometimes difficult for homeowners and some first-time buyers to find something affordable. Many also choose just to stay put and make some changes to the home they now own. These folks likely make up the 28% of U.S. homeowners who plan to remodel, expand or somehow improve their houses this year.

This is undeniable good news for home improvement stalwarts Home Depot Inc. (NYSE: HD) and Lowe’s Companies Inc. (NYSE: LOW). Both reported earnings beats in their most recent quarter, and the current quarter is among their best of the year.

The data on remodeling plans come from a survey by Bankrate completed last month. According to the survey, 36 million homeowners are planning projects this year, with more than half (52%) planning to renovate the house’s exterior; 39% planning to install new flooring; 34% installing new windows, roofs or siding; 30% renovating a kitchen; 23% renovating or adding a bathroom; 15% renovating a basement; and 5% adding a room or expanding the size of their house.

The Joint Center for Housing Studies of Harvard University projects that second-quarter 2016 spending will rise 6.8% year over year in the second quarter of 2016. That’s nearly three times the year-over-year increase in the second quarter of 2015.


One drag on homeowners’ plans is a tighter lending environment, making it difficult for them to get their hands on the home’s equity to help finance the remodeling. According to another survey cited by Bankrate, nearly two-thirds of homeowners plan to pay for their remodeling projects from savings.

The home improvement stores are less interested in where the money comes from than in where it goes. Home Depot, for example, is advertising a four-piece suite of LG black stainless kitchen appliances that regularly costs $7,246 for $5,884, a savings of about 19%.

Lowe’s is promoting its Spring Black Friday Sale that ends April 11 with items from garden mulch to power tools.

Analysts are looking for Home Depot to put up sales totaling $22.17 billion in the first quarter and to post earnings per share of $1.33. Both are about 10% higher than the company’s totals in the first quarter of last year.

The outlook for Lowe’s is slightly better, at least on an earnings basis. Analysts expect to see quarterly earnings per share of $0.84, up 20% from the year-ago quarter, on sales of $14.75 billion, compared with 2015 sales of $14.13 billion, an increase of about 4.4%.

Neither of the estimates for these companies includes the impact of major damage from natural disasters like flooding, tornadoes and hurricanes. These events, deadly as they may be, can have a positive impact on sales at home improvement stores and lumber yards.