Home-fixing fever could prove steady

WASHINGTON, Aug. 18 (UPI) -- Speculations abound that the U.S. housing market is on the verge of collapse. So it makes all the sweeter for a homeowner to discover that the house next door has sold for nearly twice as much as it had only a few years ago.

The problem often is, though, as one Washington suburb dweller found, is that the neighbors are often eager to spruce up their new home, renovating the kitchen, redoing the bathrooms, or painting bedroom walls.

All the construction work and the ensuing noise could prove to be a headache for those living next door, but it's sweet music to home improvement companies, as Home Depot and Lowes found out this week.

Home Depot, the biggest home improvement retailer in the United States, revealed Tuesday that sales in the second quarter soared 19 percent, leading the company to raise its earnings outlook for the full year.

The Atlanta company said that it earned $1.55 billion, up from $1.30 billion a year ago. Sales, meanwhile, rose 11 percent from the same period a year ago to $20.00 billion, with comparable store sales rising 4.8 percent.

"Our business strategy...is clearly driving consistent, profitable sales growth. For the first time in our company's 25-year history, we achieved $20 billion in sales in a single quarter. This achievement demonstrates that our knowledgeable associates are delivering on our company's core purpose: to improve everything we touch," said Home Depot President Bob Nardelli.

The golden touch was extended to Home Depot's investors, as the company was able to return $2.8 billion to its shareholders in the form of dividends and share repurchases. Return on invested capital, meanwhile, reached 20.4 percent, up 260 basis points from the second quarter of 2003.

But Home Depot isn't the only company that saw marked gains in the second quarter ended June 30.

Lowe's, Home Depot's biggest rival as the second-largest home improvement retailer, also reported stellar earnings for the second quarter. The Mooresville, North Carolina-based company said net earnings increased by 17.9 percent from a year ago to $704 million, while sales rose by $17.3 percent to $10.2 billion and comparable store sales increased by 5.1 percent.

"Robust housing turnover, record home ownership, attractive mortgage rates and improving consumer confidence highlighted a solid performance in the second quarter where our stores delivered record earnings," said Lowe's Chairman Robert Tillman. "A strong and vibrant housing market, combined with the commitment of our employees to provide excellent customer service, are the foundations for our confidence in the future, " he added.

Certainly, lower mortgage rates over the past few years have led to a surge in the housing market, as those who were in the rental market found it made more financial sense to become first-time homeowners rather than remain renters. Moreover, low rates led to record highs in refinancing. But what's particularly striking is that both Home Depot and Lowe's found their latest quarter one of the most profitable to date, meaning that homeowners are pumping even more money into their real estate asset even as many housing analysts anticipate a crash in the market as a matter of when, rather than if. In fact, Home Depot reported that the average home improver spent 8.2 percent more than they did a year ago to improve their housing situation.

Meanwhile, Lowe's is finding business is so good that it is planning to open 140 new stores this year, which would mean a total square footage growth of 14 percent from a year ago, with sales rising 18 percent in 2004 compared to a year ago. As for Home Depot, its president said that the company will spend $2 billion on a store modernization program, and it expects sales to rise 10 to 12 percent this year compared to 2003, up from $64.8 2 billion.

Many industry analysts expect both companies to continue doing well, even if the housing market starts to cool, given that homeowners will remain committed to their houses even if real estate prices start to sag.

Meanwhile, the home improvement companies themselves remain confident that sales will remain resilient to economic dips, especially given recent interest nationwide about fixing up homes, thanks in part to the steady popularity of do-it-yourself programs such as "Design On A Dime," "Designer's Challenge," and other shows on the Home and Garden Network as well as other television channels.

John Costello, Home Depot's executive vice president for merchandising and marketing, emphasized that one key factor for the solid financial performance was the fact that their staff were better at promoting products in the stores, and showing customers how to actually use the tools and items they buy.