The home improvement race

What are your plans this weekend? Chances are, if you’re like a majority of Americans, there is a trip to a big-box home improvement retailer in your future.

The cult of home improvement is alive and still growing rapidly, at least if the nation’s blistering home sales figures are any indication. And they are, according to industry watchers.

Two of the largest beneficiaries of this do-it-yourself craze — there’s even a whole DIY cable television network devoted to such things — are Atlanta-based Home Depot Inc. and Lowe’s Cos. of Mooresville, N.C.

Despite their clearly disparate sizes — Home Depot is the larger by far — industry analysts are unable to predict a clear victor in the race between them and don’t expect either company to end up as food for the other.

Home Depot’s 1,890 stores nationwide generated sales of $73.1 billion in 2004, compared to $36.5 billion for Lowe’s 1,087 stores. The companies combined have a lock on about one-third of the retail building-materials market. In Middle Tennessee, the two retailers have a combined presence of 23 stores in the greater Nashville area and several more farther a field.


Any given Saturday

As though drawn by religious fervor, thousands of homeowners regularly flock to the asphalt oceans surrounding Home Depot’s bright orange and Lowe’s cool blue repositories of raw materials, tools and finished goods used to adorn, alter and improve their domiciles.

Bob Hunnicutt, a silver-haired general contractor, loads a set of kitchen cabinets into a pickup at the Home Depot at 7665 Highway 70 South in Bellevue. It’s after 5 o’clock in the evening and the parking lot is still half-full.

“These [home improvement] stores are a tremendous help to us builders and contractors,” said Hunnicutt, 73, who owns Summit Construction Inc. “It’s a far cry from the old hardware stores.”

He was filling an order for a remodeling job for a couple who had seen something they liked while browsing in the big-box retailer’s store.

“I needed it first thing in the morning,” Hunnicutt said of his $800 order.

For both companies, the result of such surging demand has been a rise in sales without undue pressure to cut prices. As they have avoided price wars with each other, Thompson First Call’s analysts expect each company to have double-digit earnings growth for 2005. Each store will match a price from a competitor if asked, but comparable items are generally priced nearly identically at both chains.


No. 2 and growing

Lowe’s, which built 140 new stores in 2004, is expected to add 150 stores in fiscal 2005, and there are plans for another 160 stores in 2006.

That aggressive plan includes a Lowe’s store in Gallatin by the end of this year. In December, the company said it would begin construction of the new store on Highway 31 East and Browns Lane. The project is reportedly an $18.5 million investment by the company that will bring in 175 new jobs.

Last month, Lowe’s Cos., the No. 2 home improvement retailer, released figures showing it had outperformed its bigger rival for the fourth quarter. Net income increased to $508 million from $401 million. Sales for the company climbed 18 percent to $8.55 billion.

For the same period, Home Depot posted net income of $1.04 billion, up from $951 million the previous year. But despite a total that dwarfs its smaller rival, Home Depot’s sales gained just 11 percent to $16.8 billion.

Lowe’s revenue gain exceeded Home Depot’s because it added 56 new stores in markets, including Atlanta, and boosted sales of appliances. The company is sailing under new leadership, too. Chief Executive Robert Niblock took the helm in January.

“Lowe’s is really targeting growth in the metropolitan areas, particularly going up in areas where Home Depot is and they don’t yet have a presence,” said Janna Sampson, who manages $1.2 billion in assets, including shares of Lowe’s at Oakbrook Investment Management in Lisle, Ill.

Fourth-quarter earnings for Home Depot had their smallest gain in almost two years. The company said earnings rose 9.5 percent as appliance sales gained and the company increased its home installation services.

“Lowe’s has been posting higher comparable sales than Home Depot,” said Daniel Poole, of the Cleveland-based National City Corp., which manages $23 billion, including Home Depot and Lowe’s shares. “Existing home sales are remarkably strong, and we think that should bode for a very good year for home improvement in 2005.”

Existing home sales set a record last year, according to the National Association of Realtors. Home purchases rose 9.4 percent to a 1.226 million annual rate, and the median price increased 9.6 percent to $230,700, the U.S. Commerce Department reported in March.

U.S. spending on home improvements rose 5.7 percent in the past year, according to Harvard University’s Joint Center for Housing Studies.

Analysts say Home Depot, which has nearly saturated the United States, is now pursuing growth by tapping into foreign markets, including Canada and Mexico. In contrast, Lowe’s has years to go before it needs to look abroad for growth, since it only started entering larger U.S. markets in 2003.

Lowe’s CEO Niblock said recently that its plans are to open 65 percent of the new stores in large markets, where they have found those stores become top performers at a “very early age.”