No one expected Lowe's to beat analysts' expectations this quarter, and to beat them so roundly. Their sales were up 5.8% to $14.2 billion. Why on earth would they be doing so well in the midst of this credit crunch and declining housing market? Is the housing slump really not that bad or do people still invest in their biggest investment (their homes) even when values are perceived to be dropping?
In fairness, it wasn't an entirely rosy picture. Same store sales fell 2.6%, but that was nothing when compared with Home Depot's sales drop of 5.2%. The street greeted the Lowe's news with great excitement and the stock rallied significantly. Not only did Lowe's stock take off, but it pushed up Home Depot's too. Lowe's report reminded us that the housing market is different region by region and that not all regions are in steep decline. Another is that people do spend -- and continue to spend in bad times -- on what is for many their biggest asset. Lowe's teaches us that it is unwise to apply blanket assumptions about consumer behavior based of macro economic indicators. This is a classical example of the failure of such assumptions. Lowe's as well as Home Depot are excellent stocks to own -- even in a down market and even in a housing slump. While they may be competitors, they are the two dominant retailers in this space and have successfully kept others out.
Related Articles:
Lowe's is Higher and Higher -- Why? by ali -
Let High Interest Rates Pass by You by Judie Newman - Jan 30, 2008
Home Depot -- A quick 5% return by DanS - Sep 04, 2007
What To Do With A Dividend Freeze? by bbkjbbkj - Oct 28, 2008.
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