Lowe’s Earnings Analysis: Clear Skies vs Home Depot

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Where did the weather scapegoat go? Does Lowe’s operate in a different climate?

Lowe’s reported its Q4 results, following rival Home Depot. As we had previewed, there are several crosscurrents facing the home improvement giants, including a weak new housing market and smaller income tax refunds. We analyzed both earnings call transcripts through the Amenity Key Drivers platform, highlighting key similarities and one key difference between the two companies.

Lowe’s Did Not Follow Home Depot in Blaming Weather for Q4 Performance

Home Depot’s revenue missed analyst expectations, and the company was vocal in sole attribution going to weather. Although weather should universally apply to both companies, the theme was noticeably absent from the Lowe’s call, and the progression of the quarter suggests Lowe’s gaining momentum entering the Spring:

Lowe’s (2/27/19):
  • “Our U.S. comps improved by 2.4%, delivering a positive 5.8% comp in January. We’re also very pleased with the comp progression, which we believe further reinforces that our retail fundamental focus was in place and doing well in the quarter.”
Home Depot (2/26/19):
  • “Comps in the U.S. were positive 3.7% for the quarter with positive comps of 3.4% in November, 3.5% in December and 4.1% in January.”
  • “What we did not plan for was the extent of the unfavorable weather we experienced in all regions throughout the quarter. It was cold. It was snowy. And perhaps, worst of all, it was wet. Wet weather delays projects and this was evidenced in our sales performance in the quarter.”

Supply Chain Pressure on Margin is Consistent Between the Two Companies

Lowe’s (2/27/19):
  • “We also experienced 45 basis points of pressure from supply chain costs as we added new facilities to the network that are still ramping up to full capacity, coupled with ongoing increases in transportation cost and increases in customer deliveries.”
Home Depot (2/26/19):
  • “I think the first comment I’d have as it relates to the margin rate, was a difference in what we anticipated, a little bit more sustained pressure in supply chain maybe than what we initially anticipated in 2017.”
  • “But I will tell you, within the performance in the fourth quarter, there were a few surprises relative to the guidance that we gave at the end of the third quarter. First, the supply chain contraction of 19 basis points was a bit higher than we had anticipated. We had 3 basis points of fuel pressure come through and about 5 basis points of higher fees related to third party delivery agents.”

Lowe’s Joins Home Depot in Bullish Industry Outlook

Weak housing starts data has fueled some concern on the outlook for the home improvement industry, but both Lowe’s and Home Depot maintain a bullish view into 2019:

Lowe’s (2/27/19):
  • “The U.S. home improvement industry should continue to benefit from several factors, including income growth, lower federal tax rate, gains on household formation and continued home price appreciate. This growth is further supported by an aging housing stock. As home prices are increasing, consumers are staying in their homes longer and because of their improved financial position, they are investing in their homes.”
Home Depot (2/26/19):
  • “As we look to 2019, most housing metrics are trending positive, albeit heading toward stability.”
  • “So we’re not seeing any impact to our performance in a negative way because of the housing environment.”

Overall Management Tone Between the Two Calls was Similar

As shown below, the overall sentiment of the two calls was similar (the Amenity Score of LOW was 23 vs 18 for HD). Among the specific Key Drivers, the main difference was an uptick in forward looking commentary at LOW when compared to HD:

Company View: Comparing Lowe’s vs Home Depot Sentiment

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