May 18, 2020 / 6:55 PM / 19 days ago

DIY guards Home Depot, Lowe's against pandemic troubles

(Reuters) - With U.S. home improvement chains on course to buck the trend among brick and mortar retailers of falling sales, results this week will show Americans invested in their homes while under lockdown, but at a cost to retailers forced to adapt stores and sell in different ways.

Home Depot Inc and Lowe’s Cos Inc are both expected to report their best sales in at least a year of about a 3% to 4% increase for the first quarter, according to Refinitiv data.

Data from analytics firm Placer.ai also shows that foot traffic at Home Depot stores only dropped 0.5% in the first quarter of 2020 compared to the same period in 2019, while Lowe’s actually increased by 9.1%.

As a result, they are among the very few companies in corporate America yet to suspend dividends or pull their full year forecasts, with analysts predicting steady business growth even after the boost in March.

“Home is becoming an area that customers are disproportionately investing into, and I would expect that to persist for a while,” online furniture retailer Wayfair’s Chief Executive Officer Niraj Shah said earlier this month, helping to send shares in his own company up 35%.

Analysts do worry it may have cost Lowe’s and Home Depot relatively heavily to keep stores open, adapt layouts and service generally lower margin purchases as homebuilding comes to a standstill.

Telsey Advisory analyst Joseph Feldman said he cut his estimates for the two home chains due to concerns over lower annual sales and higher expenses related to temporary wage hikes for frontline workers, cleaning and deliveries.

He added, however, that both had proven “resilient”.

The first quarter also saw both chains, like major grocers, gain from consumer stockpiling and from being able to keep their stores open during countrywide lockdowns.

Pacer.ai data shows the trend is showing no signs of slowing, with certain days in May having more visits than during 2019’s Black Friday.

Shares in Home Depot are now trading at about 23 times expected earnings and those of Lowe’s at about 19 times expected earnings and both stocks have risen nearly 9% so far this month, outperforming the broader S&P 500 index, which is down about 2%.

“Ultimately, we expect trends to slow, just not sure by how much,” Credit Suisse’s Seth Sigman said. “We would be looking for a clearer sense on big ticket, regional and customer dispersion and anything on pull forward.”

Reporting by Aishwarya Venugopal in Bengaluru; editing by Patrick Graham

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