Home improvement stores report profits

Adriene Hill Feb 27, 2012

Adriene Hill: We’ve seen glimmers of light in the housing market recently. We just got word this morning that the number of people that signed contracts on homes is at a two-year high. We’ve also got numbers that are a little trickier to parse.

Home improvement company Lowe’s announced better-than-expected sales; so did Home Depot. But does that mean fewer people are selling, and instead renovating they homes they have? Or something else?

For more, we go to Peter Wahlstrom. He follows Home Depot and Lowe’s for Morningstar. Good morning.

Peter Wahlstrom: Good morning, how are you?

Hill: I’m well, thank you. So we’ve seen sales rise at Lowe’s and at Home Depot. What’s going on?

Wahlstrom: That’s correct. Part of it is, frankly, the extra 53rd week this year. But also you had warmer weather, so that was more favorable for holiday sales, whether it’s outdoor or early consumers starting to get into spring planting, etc. So the companies have actually been performing well despite a lackluster housing environment.

Hill: And what do these earnings tell us about the housing market more broadly? Is there anything we can read into them?

Wahlstrom: You know, in the past, there used to be a pretty tight correlation between consumer confidence and residential construction put in place that used to correlate to same-store sales for these companies. But now they’ve taken a step back and they basically have said, ‘hey, we think that sales for our companies can grow with the general economy.’ So it’s become a little bit less connected, but there are ways that the consumers can still go into that home improvement center and find ways to spend money.

Hill: Now are there any details in these earnings reports that specifically telling about the housing market, that you look to for more information about the market?

Wahlstrom: The companies will talk about some of their leading indicators and exit surveys that they have from customers. The bigger item really is that the pro-customer, or the contractor, is only a very small fraction of the overall transactions that come in through the store, but they make up about 25 percent of the overall sales volume. So they get a pretty good on-the-ground read, and I think at this point, heading into 2012, there’s a fair amount of optimism. But really it’s tough to make a call for the housing bottom at this point. Management even said this morning that they still see a little bit more pressure on housing prices just because of the foreclosure overhang heading into 2012.

Hill: Pete Wahlstrom, thanks.

Wahlstrom: Thank you very much Adriene.

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