Home Depot Sinks in the Shadow of Lowe's

For Rothbort's preview of Home Depot before the earnings call, click here.

There were some similarities and differences between the quarter's operations for Home Depot (HD - commentary - Trade Now) and Lowe's (LOW - commentary - Trade Now). Both are challenged by the weakness in the economy and housing while there are some glimmers of improvement that are beginning to materialize.

The outdoor and DIY businesses were the areas of strength during the quarter for both retailers. Lowe's seems to be trending better in April and May vs. Lowe's more flat experience. Home Depot is feeling some pain from the housing mess in California while Lowe's did not mention such problems. In fact, Lowe's hinted that it was seeing some benefit from people fixing houses up for sale in the areas with high levels of foreclosure.

Home Depot is more focused on cost-cutting and its balance sheet while Lowe's is still in expansion mode. There is an interesting article in today's New York Times that focuses on Home Depot's retrenchment during the recession vs. Lowe's continued emphasis on expansion. I got mixed message as to how the professional contractor business was performing. Finally Home Depot felt some effect from the strong dollar and weakness in Canada, which were not issues for Lowe's.

Home Depot could not really deliver a convincing follow-up to Lowe's earnings release and conference call yesterday. As a result Home Depot is giving back a majority but not all of its Monday's gains. For now I am going to stick with my holdings in Home Depot as I am convinced, as the company stated, that the back half of 2009 will be stronger than the front half. As always, I will remain flexible.

Home Depot reported EPS of 35 cents on net sales of $16.2 billion for the first quarter of 2009. Total sales declined by 9.7% while same-store sales declined 10.2%. All results including comps exclude the effect of the discontinued Expo concept.

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At the time of publication, Rothbort was long Home Depot, although positions can change at any time.

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational Web site TheFinanceProfessor.com.

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email.