Home Improvement Retailer Earnings: First Up, Lowe's

Many are expecting Home Depot (HD) to post another declining quarter, but for Lowe's (LOW) results were mixed, skewed positive. While profit dipped 8% to $0.64/share, it was still better than analyst expectations of $0.56/share. Top Line revenue actually grew this quarter by 2.4%. (See earnings call transcript.) An anomaly, maybe, during an economic slowdown, due to the stimulus package approved by the Federal Government, but nonetheless an increase. And when considering that Home Depot customers received the same stimulus, yet the street expects declines, it paints a slightly better picture for Lowe's. Granted, neither company's outlook portrait will resemble the Mona Lisa anytime soon.

Lowe's had some positives to say; in fact, as it increased the range of its full year profit forecast from between $1.45-$1.55 per share to a range of $1.48-$1.56 per share. The vital thing here was raising the bottom for analysts allowing them to price Lowe's at a slightly higher multiple.

Coming from the lows, a terrible form of humor I know, Lowe's has rallied into these quarterly results. Up 23% over the last month, which is stretching both trailing P/E and forward P/E ratios away from those of HD.

While the economy is on the hearts and minds of traders, the feeling around the Home Improvement retailers is more of a wait and see approach, treating the government stimulus package as temporary relief. There isn't a growth or turn-around possibility here just yet. While Lowe's stores open more than a year had smaller sales declines than some expected, but the fact remains that it's a tough investment pitch until Americans get back to comfort levels where they can renovate their homes, and with Lowe's being centralized in the US and Canada, that may be 6-12 months away yet. So until '09, I don't think so.

Disclosure: Author holds no position in any of the above mentioned companies