Home improvement retailers are evolving to meet the needs of budget-conscious consumers stuck in homes they can't sell.
Home Depot Inc. is focusing more on low-priced items and Lowe's Cos. on improving customer services such as outdoor equipment repair — changes dictated by the companies' first-quarter results, which show customers holding onto their cash until it's the right time to spend.
Home Depot, the largest U.S. home improvement chain, said Tuesday that its revenue edged down 0.2 percent to $16.82 billion for the quarter that ended May 1, missing Wall Street's $17.06 billion estimate. Lowe's, which reported quarterly its earnings Monday, saw its revenue drop 2 percent.
Weather is critical to both chains, and the spring selling season — their second-biggest in revenue after summer — typically prompts a flurry of seasonal purchases of plants, patio furniture and barbeque grills. But harsh conditions blanketed most of the nation for much of the first quarter, and shoppers stayed indoors.
So Home Depot and Lowe's, knowing their customers will come in for spring products once the weather improves, are working now on new ways to keep them coming back. Home Depot raised its full-year earnings forecast, but Lowe's dampened its outlook.
Home Depot executives said during a conference call Tuesday that their chain is beefing up offerings like paint and soft-sided tool storage as maintenance and repair — instead of major renovations — remain at the forefront of consumers' minds.
Homeowners have plenty of cause for caution, with new-home construction down in April and U.S. homebuilders worrying the housing market won't recover this year. Shoppers all but abandoned big-ticket projects during the recession.
Home Depot Chief Financial Officer Carol Tome said in an interview with The Associated Press that her company is offering a variety of cost-conscious options, such as cabinet re-facing, for customers who still want to upgrade their kitchens. This price-conscious approach helped contribute to a 1.5 percent increase in the dollar amount of the average transaction at Home Depot for the quarter. At Lowe's, the average receipt was nearly flat.
Lowe's Chairman and CEO Robert Niblock also said during a Monday conference call that rising gas prices are pushing consumers to shop at whichever store is the most convenient.
Based on store count, that would put shoppers in Home Depot more often. Lowe's had 1,751 stores in the U.S., Canada and Mexico as of April 29, dwarfed by Home Depot's 2,245 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces, Mexico and China.
To combat the convenience factor, Niblock says Lowe's is differentiating its services and products and opening new stores in targeted locations. Lowe's said Monday that its first-quarter net income fell 6 percent.
Home Depot's Tome said, however, that it is too early to draw a correlation between gas prices and customer traffic. And her company said Tuesday that its net income rose 12 percent to $812 million, or 50 cents per share, up from $725 million, or 43 cents per share, a year earlier. That beat the 49 cents per share that analysts surveyed by FactSet expected on average.
Mooresville, N.C.-based Lowe's lowered its full-year outlook to $1.56 to $1.64 per share on a revenue increase of about 4 percent, implying revenue of about $50.79 billion. It previously forecast earnings of $1.60 to $1.72 per share on a 5 percent revenue increase.
Home Depot, based in Atlanta, increased its fiscal 2011 earnings forecast and now expects to earn $2.24 per share, up from $2.20. It kept its revenue forecast at 2.5 percent growth from 2010, when it took in $68 billion, implying revenue for 2011 of $69.7 billion.
Wall Street predicts earnings of $2.30 per share on revenue of $69.72 billion.
Shares of Home Depot gained 27 cents to $37.25 by early afternoon, while Lowe's stock lost 2 cents $24.82.
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