PREVIEW-UPDATE 1-Spring to add shine to Home Depot, Lowe's

Fri May 14, 2010 1:04pm EDT

* What: Home Depot, Lowe's first-quarter results

* When: Lowe's on May 17, Home Depot on May 18

* Spring sales strong, but will the momentum last?

* Analysts see room for both stocks to grow (Adds link to graphic)

By Dhanya Skariachan

NEW YORK, May 14 (Reuters) - U.S. home improvement chains Home Depot Inc (HD.N) and Lowe's Cos Inc (LOW.N) are set to report a strong spring quarter next week, as consumers spruced up lawns and gardens and sought energy-efficient appliances.

Many homeowners put their renovation plans on ice during the recession. But in the last few quarters, more have upgraded appliances to benefit from a federal stimulus for energy-efficient goods and invested in homes they are likely to live in for a longer period of time.

Some took up home projects like painting, while many others bought fertilizer, potting soil and tools to turn over gardens for the spring. Demand for outdoor furniture and products like lawn mowers was also strong, analysts said.

That is good news for Lowe's, which is due to report quarterly earnings on Monday, and Home Depot, scheduled to post results on Tuesday.

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For a graphic comparing Lowe's and Home Depot results,

see:here

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"The housing sector beginning to come back is part of it, but again part of it is just the fact that people have been keeping their powder dry, given their fear about the economy for over three years," said Craig Johnson, president of retail consulting firm Customer Growth Partners.

He said both U.S. home improvement chains are poised to report their best quarter in over three years.

An improving economy is also helping to get U.S. consumers out of the "repair mode" to "more of a replacement mode," NPD analyst Mark Delaney told Reuters.

"Spring is all about change, especially when you are coming off a bad economic downturn. I think everyone has the frame of mind where they want to improve their lives and ... their surroundings," he said.

He sees demand for outdoor products like patio furniture and barbecues continuing even beyond spring, especially as many U.S. consumers spend holidays at home this year instead of venturing out for vacations.

While paint and faucets should do "fairly well" in 2010, categories that might struggle would be more expensive purchases like cabinetry, often related to larger projects that involve a contractor, Delaney said.

Lowe's is expected to post a quarterly profit of 31 cents per shares, down from 32 cents a year ago, while Home Depot is forecast to see profit rise to 40 cents per share from 35 cents a year ago, according to Thomson Reuters I/B/E/S.

Thomas Villalta, a portfolio manager at the Jones Villalta Opportunity Fund in Austin, Texas, which owns Home Depot shares, said he expects the company to beat both profit and sales expectations in its seasonally strong first quarter.

HOMEWARD BOUND SPENDING

Recent quarterly reports from lawn and garden products maker Scotts Miracle-Gro (SMG.N), building products maker Masco (MAS.N), paint maker Sherwin-Williams (SHW.N), appliance maker Whirlpool (WHR.N) and Fortune Brands FO.N also point to a recovery in demand for home goods.

A recent report by NPD Group showed "do-it-yourself" home improvement categories -- power tools and outdoor power equipment -- making double-digit dollar sales increases in the 12 months ended March 31.

"Because of the general economy coming back, people who are among the 83 percent with full-time jobs are focusing on their homes again," Johnson said.

In February, both Home Depot and Lowe's fueled hopes for a recovery by indicating that some U.S. customers were warming up to spend on big-ticket projects such as new flooring and refurbished kitchens, after a protracted slump in the housing market.

Analysts say a major pick-up in big-ticket home improvement sales depends on a further recovery in the U.S. job market and home prices.

But investors have already placed their bets on a rebound. Home Depot shares are up about 21 percent this year, and Lowe's has risen about 12 percent.

Analysts see more upside for both stocks as the companies stand to benefit from cost-cutting efforts and any further improvement in the housing market.

"For more consumers, the home is still where you spend the majority of your time ... Once people can get past the economic downturn and how bad it indeed was, I think all the signs are pointing toward a fairly healthy recovery," Delaney said. (Reporting by Dhanya Skariachan; editing by John Wallace)

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