Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
While few expect a rip roaring return of the housing market, the key for national GDP is stability. Auto production and housing are key drivers for GDP, and with both bouncing off extreme levels reached in 2009-2010, it would take a serious contraction in a series of other markets to offset their real (or perceived) stability. Housing more than any other major sector is unique in its inability to be outsourced. Any remodel/rebuild/original build obviously has to be done domestically. So needless to say it is a key lever in the U.S. economy. Home Depot (HD) reported earnings Tuesday evening and continued the “housing has stabilized” theme. The stock has been signaling as such for a while now – but strangely Lowe’s (LOW) has not.
Via AP:
- The Home Depot Inc. is feeling more optimistic about the recovery of the housing market after customers spent more on sprucing up their homes in the second quarter. The country’s biggest home-improvement retailer said Tuesday that strong cost controls and healthy sales of paint, bathroom accessories and kitchen installations helped lift its net income by 12 percent during the period. The Atlanta-based company boosted its full-year outlook, citing its performance so far this year.
- In a conference call with investors, Chairman and CEO Frank Blake noted that some of the strongest growth in the latest quarter came from the markets that were hit hardest in the downturn, such as California and Florida. “These are encouraging signs of stabilization in the housing market,” Blake said.
- He also noted that the housing market is now a contributor to the country’s gross domestic product, rather than a drag. Another positive sign for Home Depot: the Commerce Department said Tuesday that Americans boosted their spending at retail businesses in July by the largest amount in five months, as spending increased on furniture and building materials, among other items.
- Although customers still aren’t spending as much on their homes as during the housing bubble, Home Depot said it saw signs of improvements in key areas. Overall, revenue at stores open at least a year rose 2.1 percent, which was slower than the 4.3 percent growth last year. The company noted that the warm winter pulled sales of many seasonal items, such as gardening products, into the first quarter.
- In the U.S., where the majority of Home Depot’s stores are located, the figure rose 2.6 percent. The metric is a key gauge of a retailer’s health because it strips out the impact of recently opened or closed locations.
- Transactions of $900 or more, which make up about 20 percent of U.S. sales, rose 3.4 percent in the quarter, as appliance, kitchen and flooring sales increased. Transactions of $50 or less, which also make up about 20 percent of sales, were down 0.7 percent.
- Brian Sozzi, chief equities analyst with NBG Productions, noted that the improvement in sales of bigger-ticket items suggests consumers are opening up to the possibility of larger projects, such as redoing their cabinets. They’re also spending on other items. “People are buying lawn mowers and other items they weren’t necessarily buying in 2010 or 2011, when they just didn’t want to put that on their credit cards,” he said.
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