Tuesday, May 15, 2012 | Edited by Daniel Moores
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Home Depot, Lowe's Could See an Increase in Business

Spending on construction of new residential housing and improvements to existing homes is at a three-year high, a trend that may boost sales at Home Depot and Lowe's.

Private-residential fixed investment, which includes major replacements such as new roofs and improvements like finishing a basement, rose 9.1 percent from a year earlier to an annualized $360.7 billion for the three months ending March 31. This marks the fourth consecutive quarter of nominal increases and was the fastest pace of yearly growth since 2006, U.S. Bureau of Economic Analysis data show.

These expenditures may prolong a structure's life or increase its value and are "another piece of corroborating evidence" that home-related purchases were "very good" in the first quarter, said Scot Ciccarelli, an analyst at RBC Capital Markets.

New U.S. homes sold at a 328,000 annual rate in March, beating the 319,000 median estimate of economists surveyed by Bloomberg News. The total was down from an upwardly revised 353,000 pace the prior month that was the highest in two years, based on Commerce Department data.

Residential building permits also climbed unexpectedly by 4.5 percent to a 747,000 annual rate in March, the highest since September 2008. Economists surveyed by Bloomberg predicted a 710,000 pace.

Private-residential spending -- which accounts for about 2.3 percent of gross domestic product -- is highly correlated with comparable-store sales for Home Depot and Lowe's, the two largest U.S. home-improvement retailers, Ciccarelli said.

Same-store sales probably rose at least 5 percent in the fiscal first quarter at Home Depot and at least 2.4 percent at Lowe's from a year earlier, he forecasts. Home Depot is scheduled to release earnings today, followed on May 21 by Lowe's.

Home Depot reported an increase at stores open at least a year of 5.7 percent for the three months ended Jan. 29; Lowe's said sales rose 3.4 percent for the three months ended Feb. 3.

About 30 percent of Fortune Brands Home & Security Inc.'s North American sales are at Home Depot, Lowe's and home-improvement chain Menard Inc., Chief Executive Officer Christopher Klein said. The company, which owns the Moen faucet and Omega cabinet brands, is projecting a 4 percent increase in 2012 revenue for its repair and remodel business, up from a previous estimate of 2 percent, he said.

As the housing industry shows signs of a comeback, the Standard & Poor's 500 Home Improvement Retail Index, made up of Home Depot and Lowe's, has risen 73 percent since Aug. 10, 2011, compared with the S&P 500's 21 percent gain.

(Source: San Francisco Chronicle, 05/11/12)



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