Home Depot and Lowe’s: Strong Sales Traction in the US in 2Q16



Analyzing sales drivers for The Home Depot (HD)

The Home Depot’s (HD) US sales benefited from a resurgent housing market, lower gas prices, and rising employment and incomes. The company also reported double-digit same-store sales in appliances. According to Edward P. Decker, executive vice president of merchandising, the success was due to HD’s Memorial Day and Fourth of July events.

This trend may benefit companies such as General Electric (GE), Samsung (SSNLF), and Whirlpool (WHR), which supply appliances to HD. Lowe’s (LOW), which declared second quarter results a day after The Home Depot, reported double-digit growth in appliance sales.

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Weather impact

US sales were strong across markets for both The Home Depot (HD) and Lowe’s (LOW). Craig Menear, CEO (chief executive officer), president, and chairman of the board for The Home Depot, said that all three US divisions outperformed their sales targets with comps (comparables) in the mid-high single-digit range. Lowe’s reported positive comps in all 14 geographic regions and in 11 out of 13 reporting product categories.

However, sales of some outdoor products weren’t as strong for both retailers (XRT) in the quarter. Year-over-year comparisons were challenged as poor weather in certain geographies affected sales of outdoor products.

International sales feel forex pinch

The Home Depot’s (HD) international sales were affected by a stronger US dollar. Carol Tome, Home Depot’s  CFO (chief financial officer), mentioned a 1.5% negative impact on revenue due to the stronger dollar. While HD didn’t disclose comps figures for its international operations, it did mention that its Mexico and Canada comps were positive for the 47th and 15th straight quarters, respectively, in constant currency terms.

That said, HD has relatively lower exposure to overseas currencies compared to some of the other consumer (FXD) stocks listed in the Dow and S&P 500 Index. HD’s overseas sales made up ~10.2% of total sales in fiscal 2015. Nike (NKE) derives ~55% of its sales from outside the United States. For Wal-Mart Stores (WMT), overseas sales make up ~28% of the retailer’s total revenue.

HD and Lowe’s together make up 1.9% of the portfolio holdings of the iShares S&P 100 ETF (OEF) and 1.2% of the iShares Core S&P 500 ETF (IVV).


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