Lowe's Knows

What is it that Lowe’s knows that the rest of the market doesn’t? Last week, they reported a decline in their fiscal fourth quarter earnings citing the slowing housing market. Lowe’s (NYSE: LOW) is the consumer friendly version of home improvement stores as opposed to Home Depot that tries to appeal to the contractor and serious home repair persons. But their stock did not fall, instead it went up. Why? 2007 is not going to be so bad they say.

Whew, that makes us all feel better. They even plan to keep opening stores because they are so optimistic. All those reports showing a slowing economy must be wrong, right? They’ve got 150 to 160 new stores planned to open in 2007. Sales will go up!

But why did sales do down in the first place? Well, they say it tough to compare to the hurricane rebuilding numbers from the year before. Hmmm, last time I checked there wasn’t much rebuilding going on in New Orleans or Mississippi. In fact, many insurers and government agencies still haven’t paid out money for people to rebuild. There aren’t any new apartment buildings in New Orleans and as recently as last week, you can still see blue tarpaulin covering roofs in the hurricane zone.

Plus, isn’t Lowe’s supposed to be a national company? Are their sales mostly dependent on Louisiana and Mississippi? They also cite a deflation in lumber and plywood prices. Really? That’s interesting. Having spoken to people last week in the hurricane zone area, they said that basic materials were so expensive; most construction companies couldn’t afford to take on jobs. The cost of concrete was too prohibitive and they were forced to wait until the prices came down. If insurers did pay, it was based on pre-hurricane material prices. That money does not cover the current price to rebuild.

Lowe’s is the place people go to buy lamps and appliances. Sure they have sheetrock and plywood. But it’s Home Depot where the more serious builder goes. And it’s professional lumberyards where the big contractors go for their supplies. Lowe’s caters to the average consumer looking to fix up their home, not the serious renovator. That demographic is dependent on the economy and a strong housing market. Apparently, Lowe’s knows something the economists don’t.