QualityStocks.net Market Reviews – No Home Improvement Yet

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Today’s market review focuses on the housing sector,

The twin reports from retailers for the home improvement market, the main stores for do-it-yourselfers, Home Depot (NYSE: HD) on Tuesday and Lowe’s (NYSE: LOW) on Monday, showed essentially the same thing, that the housing sector woes have thoroughly worked their way into this specialized sector of retailing and is expected to continue affecting it for the near term.

Home Depot experienced not only a 27% drop in its fourth quarter profit, but also showed a decline in annual sales for the first time in its history. For the recent quarter, the company earned 40 cents per share vs. 46 cents last year, or $671 million vs. $925 million last year, on revenue of $17.6B vs. $17.4B last year, even with the quarter featuring an extra week this year.

For the full year 2007, Home Depot, with a $48.6B market cap, earned $2.37 per share vs. $2.79 the previous year, on $4.4B income vs. $5.76B a year ago. Same store sales declined 8.3%. The outlook for 2008 is more of the same, with a projected drop in sales expected of as much as 5% and a corresponding EPS decline of 20%-25%. The stock, which has been trading in a 52-week range of 23.77-41.19, traded recently in the $28 range.

A similar report came out on Monday from Home Depot’s main competitor, Lowe’s Stores. Lowe’s had a 33% decline in fourth quarter earnings, from $613 million a year ago to $408 million, or 28 cents a share down from 40 cents. Net sales were down from $10.41B to $10.38B, while same store sales were down 7.6%. Although prospects in the do-it-yourself home improvement industry remain bleak for the near term, Lowe’s management did project that first quarter earnings will rise. Lowe’s has a market cap of $36.5B and has traded in a range from 19.94-35.25 in the last year, recently it was trading at just under $25 a share.

Both Lowe’s and Home Depot depend on individual consumers as well as construction contractors for their remodeling, repair and construction materials supply businesses, so the devastated housing market has had a major impact on revenues and profits. With the continuing decline in residential real estate prices, the mounting foreclosures, and the effects of the subprime credit crisis, there is no immediate turnaround in sight for homebuilders, mortgage companies, some banks, and construction-related retailers such as Home Depot and Lowe’s.

There are, however, some hints that the worst might be over. Many analysts suggest that the housing sector has bottomed out, and while there won’t be a startling rebound, the slow, steady, grinding turnaround will begin, most likely as we get into the second half of the year. Prospects should be better long term for both retailers. Apparently Wall Street’s take on this was agreed upon across the board, as both stocks rallied mildly after releasing their dismal reports.