The Rough Stuff Sells

The second-quarter performances at both Home Depot and Lowe’s followed some similar themes this summer, as consumers were driven to update their rough plumbing and HVAC systems, or spruce up outdoor spaces with small, affordable projects. Other than that, the numbers showed consumers weren’t driven to do much else.

At Lowe’s, rough plumbing was one of only two categories that saw positive comparable-store sales in the quarter. The category was driven by strength in air filtration products, pumps, tanks, water treatment products and HVAC controls. Somewhat disheartening in the midst of this bright spot for sales, Lowe’s president and COO Larry Stone noted that the gains in rough plumbing were in part due to price inflation in copper and resin products.

By contrast to the relative success of rough plumbing items, fashion plumbing products were counted as one of the weakest sellers in the summer season. Joining this category were kitchen cabinets and countertops, two “big ticket” categories that have seen housing market-related weakness for the past year.

As one of the two categories that saw positive comp-store sales at Lowe’s, lawn and garden also showed strength, in large part because of good weather in parts of the country.

“Favorable weather, wide product selection and great customer service helped drive solid nursery sales as consumers took on small projects to enhance the appearance of their outdoor space,” Stone told investors.

Q2 earnings$938 million Down 7.9 percent
Q2 sales$14.5 billion Up 2.4 percent

Lowe’s executive vp and CFO Robert Hull Jr. detailed further categories that performed better than the company average during the quarter: building materials, hardware, paint, flooring, nursery, outdoor power equipment, lawn and landscape products, appliances and “home environment” items. Walls, windows and seasonal living performed “at approximately the overall corporate average,” he said.

Lowe’s helped matters by holding inventory down, Hull said. Total inventory was down 7.7 percent compared with last year, a trim-down that Hull attributed to “good inventory management practices” in fashion plumbing, lighting and tools.

“We’re doing a better job with tool promotions and less in-and-out inventory,” he added.

In all, Lowe’s net earnings declined 7.9 percent year-over-year to $938 million; while net sales rose 2.4 percent to $14.5 billion. Overall, comparable-store sales declined 5.3 percent.

Also in the second quarter, Lowe’s opened 23 new stores, compared with 26 new stores last year.

Most recently, Lowe’s announced locations for five new stores: Machesney Park, Ill.; Marysville, Ohio.; Land O’Lakes, Fla.; and Hamburg, N.Y. A fifth location in rural New Albany, Miss., will be one of the company’s smallest format stores, at 80,000 square feet.

Home Depot recorded some similar strengths—as well as similar weaknesses—in its second quarter, and kicked off the third-quarter with some major marketing and operational news.

But unlike Lowe’s, Home Depot didn’t see positive comparable-store sales in any category, even rough plumbing. Still, Home Depot merchandising head Craig Menear told investors that plumbing outperformed the average comp-store sales figures for the retailer, while seasonal and kitchen and bath items also came out above average.

“Lumber, building materials, hardware, flooring, paint, electrical and millwork were all below the company’s average comp,” he added. “And with the softness in these project businesses, the average ticket was down 1.2 percent from last year to $57.58.”

Home Depot
Q2 earnings$1.2 billion Down 24.3 percent
Q2 sales$21 billion Down 5.4 percent

In the second quarter, Home Depot’s earnings dropped 24.3 percent to $1.2 billion. Sales were down 5.4 percent to $21 billion, and comparable-store sales fell 7.9 percent.

But outside the strictly financial realm, it has been an eventful month for the nation’s largest home channel retailer. First, the company announced Paul Raines, executive vp-U.S. stores since April 2007, would leave Home Depot. He is set to take the COO spot at video-game retailer GameStop Corp.

Marvin Ellison was quickly announced to fill the vacancy left by Raines. Ellison will now oversee the retailer’s nearly 2,000 stores in the United States, Puerto Rico, the U.S. Virgin Islands and Guam.

Ellison has served as the company’s Northern Division head since January 2006, and has held positions of increasing responsibility at the retailer, including senior vp-logistics. Previously, Ellison served as vp-loss prevention at Home Depot and spent 15 years in operations management at Target.

And in another shakeup, this time on Home Depot’s marketing side, Joe Gibbs Racing announced that Joey Logano will replace Tony Stewart in the Home Depot-sponsored Sprint Cup No. 20 Toyota team starting in the 2009 season. Stewart served as the long-time face of Home Depot’s NASCAR racing sponsorship, one of the retailer’s largest sports endeavors. Stewart, who is a two-time Sprint Cup Series Champion, has decided to drive for the team Haas-CNC, which he co-owns.

Next on the docket for Home Depot: the retailer’s chief financial officer, Carol Tomé, will give a presentation on Sept. 17 during Bank of America’s annual investment conference in San Francisco. A webcast of the presentation will be available on Home Depot’s investor relations Web site,

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