Is the home-improvement sector, long a bright spot in the upended US retail market, still going strong?
That’s a natural question to ask in wake of disappointing sales results reported by No. 2 US improvement retailer Lowe’s Cos. Wednesday. Another indicator that could impact home-improvement spending: The National Association of Realtors reported a 2.3% decline in April existing-home sales from March.
Despite those headlines, the sector, led by industry giant Home Depot, is likely to continue to outperform. While Lowe’s reported a disappointing 1.9% Q1 comparable sales increase that trailed the 5.5% gain Home Depot reported, that’s still above the meager 0.1% increase Retail Metrics data showed the entire retail sector is expected to eke out. Another sharp contrast: Many apparel, luxury and department store segments are seeing sales continue to decline. Tiffany & Co., for instance, on Wednesday reported an unexpected comparable sales drop.
“The home improvement industry should continue to see solid gains in job and income growth” to drive increases in both disposable income and consumer spending, said Lowe’s CEO Robert Niblock on a call Wednesday. “Housing is expected to remain a bright spot.”
Lowe’s recent consumer sentiment survey also painted “similar favorable trends,” Niblock said.
“Rising home prices are continuing to encourage homeowners to engage in more discretionary projects in addition to ongoing maintenance and repair spending, and we believe that this trend will continue,” he said, adding well over half of homeowners it surveyed believe their home values will continue to rise and nearly half of them said they intend to engage in a home improvement project in the next six months, with their home improvement spending expected to continue to outpace overall spending.Tight housing supply has contributed to rising prices.
Indeed, the tight housing supply is a key reason for the decline in existing home sales, according to the National Association of Realtors. In fact, the median number of days a home remains on the market has declined to under one month. That tight supply, meanwhile, has translated to higher prices. The median existing home price rose 6% in April from a year earlier, 62nd straight monthly increase, the association said.
“Clearly there is demand that’s being created by this housing market that is very strong,” said Home Depot CFO Carol Tomé in the company’s earnings call last week. Among 76 million owned households in the US, she noted, there are only 3.2 million that have “negative equity in their home,” compared to 11 million in 2011.
The home improvement sector has outperformed the overall retail sector since mid-2012, with Home Depot outpacing Lowe’s in 28 of the past 30 quarters, according to Retail Metrics.