Home improvement is and has been an emerging trend
Amidst the lockdown in the first quarter, consumers have held back in their usual spending outside their homes while indoor expenditures have stayed resilient and even saw impressive growth despite recessionary numbers. Inevitably, leading major home improvement stores Home Depot (HD) and Lowe’s (LOW) have benefited from this trend.
The 2020 Great Lockdown that resulted in the most anticipated recession in more than a decade cost so much reduce in mass spending. Per the US Census Bureau, the retail sales in the US fell through the floor as the lockdown was widely implemented. Spending dropped 0.4% in February, another 8.2% in March, and an all-time low of 16.4% in April.
Specifically, US consumers basically spent a lot less in clothing and accessories (down 78.8%), electronics and appliances (down 60.6%), and furnitures (down 58.7%).
Despite these previous dire numbers, the world’s largest home improvement retailer—Home Depot (HD)—reported a surprise comparable 7.5% sales growth in the US. Wall Street was expecting a 5.8% growth.
Meanwhile, Lowe’s (LOW) demonstrated far larger comparable sales beat of a whopping 11.2% growth compared to Wall Street’s 4% estimates.
Amidst the environment uncertainties, both companies boosted their cash dispensary by adding more debt to their balance sheets. Also, both pulled their guidance for their corresponding fiscal year 2020.
These growth numbers can be easily swept under the rug as more broad economic events were and still is on the horizon. The dark clouds are still hovering as the world is still waiting for a vaccine.
Nonetheless, spending has came back quick as the US slowly began opening its businesses and just recorded its strongest growth in history in May with 17.7% growth.
Tremendous growth was observed in sales in clothing (+188% growth); furniture (+89.7%); sporting goods, hobby, musical instrument, and book stores (88.2%) among other criteria.
As bored home buddies get out of their comfort and allocate less spending for home improvement, the aforementioned retailers may have seen their best days early this year. One thing that may held up spending is the incoming millennial boom in home ownership where this age group now consist of the largest cohort of homebuyers.
Meanwhile, investors may want to reduce their exuberant expectations with the retailers with both the Home Depot and Lowe’s topping all-time highs early this summer amidst the ongoing recession and the recalcitrant virus.
Disclosure: No shares in any of the companies mentioned.