TThe home improvement industry has seen an increase in sales since the start of the coronavirus pandemic. Earlier in May, Home Depot (NYSE: HD) posted much better than expected first quarter results. Likewise, when Lowe’s (NYSE: LOW) released first quarter results, it significantly exceeded analysts’ estimates.
Using these results, let’s try to find out if Lowe’s gained market share in a quarter where the home improvement market overall experienced robust growth.
Take market share
For a direct comparison, The Home Depot increased its sales 32.7% year-over-year in the first quarter, and Lowe’s increased its sales by 24.1% compared to the same quarter last year. . Looking at the results head-on, it appears Home Depot has grown revenue much faster than Lowe’s. And in fact, Craig Menear, CEO of The Home Depot, said on the first quarter conference call that “it looks like we got around 170 share points overall, based on March data released by the government”.
The home improvement market is worth around $ 800 billion a year. Image source: Getty Images.
Still, the home improvement market is bigger than Home Depot and Lowe’s. So it could very well be that every company is gaining market share in the $ 800 billion home improvement market in the first quarter.
Here is what Lowe’s management had to say in the first quarter press release accompanying its earnings announcement: “Total first quarter sales were $ 24.4 billion versus $ 19.7 billion in the first quarter. first quarter of 2020, and comparable sales increased 25.9%. Comparable sales for the home improvement business in the United States increased 24.4% in the first quarter. ”
So Lowe’s also says it gained market share in the first quarter. At first glance, Lowe’s has collected around 150 basis points in share. As the two big retailers gain market share, this could come at the expense of smaller retailers who did not survive the pandemic or did not have the capital to adapt like Home Depot did. and Lowe’s.
Image source: Getty Images.
Lowe’s management said they believe that while the macro outlook remains volatile, it can continue to gain market share. But above all, he thinks he can do it while improving his operating margin. In other words, it won’t depend heavily on promotions, lower prices, or other means of making sales at the expense of profits.
Lowe’s is confident that its Total Home strategy initiative will enable it to gain market share and improve its profit margins. As part of this program, Lowe’s enhances its investments by reaching out to the professional customer, its online capabilities, installation services, location and expanded product assortment.
During the first quarter conference call, Lowe’s management seemed confident in its ability to meet two goals in 2021: gain market share and improve operating margin. Management has acknowledged that consumer behavior is too uncertain to be predictable for the rest of the year, but gaining market share and improving margins are two things they think they can control.
Takeaway for investors
Over the past decade, Lowe’s has averaged an operating profit margin of 7.5%. Its goal for 2021 is to reach 12%. In the first quarter, its operating margin stood at 12.42%. Lowe’s reiterated the positive outlook for the remainder of 2021, stating: “To date better than expected results for the year and a favorable macroeconomic environment reinforce the company’s confidence in its ability to deliver strong results for the year, including maintaining its market share, gains and achieving an operating margin of 12%. “
Even with an average operating profit margin of 7.5%, Lowe’s has grown earnings per share at a compound annual rate of 18.5% over the past decade. If he can achieve and maintain an operating profit margin north of 10% and maintain mid-digit revenue growth, investors could be in line for healthy returns. Therefore, if you haven’t already, you should consider adding stocks of Lowe’s to your portfolio.
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Parkev Tatevosian does not have a position in any of the titles mentioned. The Motley Fool owns stocks and recommends Home Depot. The Motley Fool recommends Lowes. The Motley Fool has a disclosure policy.
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