March 1, 2013 / 8:36 PM / in 5 years

TEXT - Fitch says home improvement sales underscore housing recovery

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.

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