March 1 - Home improvement retailers The Home Depot Inc. (Home Depot; issuer
default rating of 'A-') and Lowe's Companies, Inc. (Lowes) reported solid 4Q12
results this week, underscoring Fitch Ratings' view that the housing recovery is
in its early stages, although we note that the recovery will continue to occur
in fits and starts.
Home Depot saw same store sales increase 4.6% in 2012, while Lowe's saw a more
moderate increase of 1.4% as it strives to improve its value proposition and
merchandise differentiation. We project Home Depot and Lowe's will generate same
store sales growth of approximately 2%-4%, which is slightly below our forecast
for 4% growth in total home improvement spending this year. This reflects, in
Fitch's view, a slightly faster growth rate in sales channels serving
With combined U.S. revenues of $125 billion, Home Depot and Lowe's comprise less
than one-half of the total home improvement market, which is estimated to be
about $280 billion. Both retailers also sell to commercial customers, although
the bulk of their sales are home-improvement related.
The 4.0% growth in home improvement spending projected for 2013 follows an
estimated growth of 4.5% during 2012. Home remodeling spending should continue
to benefit from the improvement in housing turnover this year. We expect
existing home sales to advance 7.7% this year, while new single-family home
sales are forecast to increase 22.0%.
Growth patterns in the intermediate term are likely to be below what the
industry experienced during the previous housing boom and the early part of the
past decade due to slower growth in the U.S. economy and only moderately
improved housing market conditions. Growth in this segment will also be
restrained by tight bank lending standards, which will make it difficult for
homeowners to use credit to finance remodeling projects. As such, we continue to
expect spending for big-ticket remodeling projects that will lag the overall
growth in the home improvement sector.