Lowe’s cashes in on rising house prices, low unemployment

With housing prices expected to keep their shine in 2017, and unemployment rates near their post-crisis lows, home-improvement chain Lowe’s is hoping to capitalise on Americans’ desire to feather their increasingly valuable nests.

The company’s shares were up more than 9 per cent on Wednesday after it reported a better-than-expected 5.1 per cent rise in comparable sales — a key industry metric — for the three-month period ending February 3, which includes the critical holiday shopping season. Sales during that time also increased 10.1 per cent from the same period a year earlier to $15.8bn, beating the $15.4bn expected by analysts surveyed by Bloomberg.

During the same quarter, earnings per share came in at 74 cents, versus expectations of 78.6 cents, on net income of $663m, which was slightly below expectations of $679.4m.

The company’s chief executive, Robert Niblock, said in a call with investors that the company was positioned to take advantage of the “favourable macroeconomic backdrop for home improvement” in the coming year, by expanding its customer reach and anticipating how best to support both amateur and professional fix-it-uppers with their product and channel mix.

Factors working most in its favour, he added, were increasing home prices — which rose 5.6 per cent in December from the previous year, according to a closely watched S&P/Case-Shiller report released on Tuesday — and relatively low unemployment.

As home values rise, people will look to invest more in their surroundings, and the steadily low jobless rate gives them the funds with which to do so, Mr Niblock said:

We expect housing in 2017 to remain a bright spot. Rising home prices should continue to encourage homeowners to engage in more discretionary projects in addition to ongoing maintenance and repair spending. Improving incomes and household financial conditions should continue to be a catalyst for household formation which will help sustain homebuying and related spending.

For the coming fiscal year, Lowe’s — whose shares have risen 17.6 per cent over the past 12 months — said it expects total sales to rise 5 per cent, a 3.5 per cent boost in comparable sales and diluted earnings per share of approximately $4.64.

Lowe’s isn’t the only do-it-yourself (or pay-someone-to-do-it-for-you) home chain that’s benefitting from rising home prices. Last week, rival Home Depot unveiled stronger-than-expected profits and growing sales, which it credited to a “healthy housing market and strong customer demand.” It’s proof that a pockets of the retail sector continue to thrive, even as some stores feel the bite from shifting consumer preferences.