Ace Hardware has been burnishing its credentials as a neighborhood DIY destination with its first-ever fully integrated paint advertising campaign, while Menard is working out of ever-larger locations, expanding to as much as 250,000 sq. ft. in one location and building a new 235,000-sq.-ft. store.
That said, Home Depot and chief rival Lowe’s continue to dominate the national home improvement field. Warm temperatures and light winter snowfall precipitated a strong start to 2012: Consumers got an early jump on spring cleanup projects and lawn and garden chores, offsetting the reduced demand for de-icers and snow removal equipment. The momentum was such that Home Depot raised its forecast for year-end results for the current fiscal year.
“We remain positive on the sector and continue to look favorably toward prospects for Home Depot and Lowe’s,” notes Brian Nagel, who follows the industry for Oppenheimer & Co. Home Depot “represents our preferred near-term pick within home improvement retail,” he says. “With support of improving demand dynamics and given continued solid financial controls at the chains, we expect [them] to make for two of the better performing large-cap hardlines stocks over the next several quarters.”
Recent housing data including existing and new home sales, builders’ confidence and housing starts point to a strengthening housing recovery: Couple that with a continued declined in mortgage rates and the trends bode well for home improvement retailers, Nagel says.
If there is anything negative on the horizon, it could be a slower pace to the merchandising turnaround at Lowe’s. Lowe’s trimmed its year-end forecast and said it is slowing expansion plans after making a major move on the West Coast over the past couple of years. Any weakness in sales and margins at Lowe’s likely reflects “the increasingly aggressive efforts on the part of management to re-merchandise stores,” Nagel says.