Is Home Improvement on the Rebound? HD, BLDR, LL, LOW

Spring Cleaning in the Middle of December

Yes it’s true that Home Improvement stores were one of the major victims of the Great Recession as the new and used housing market took an even harder beating. Home Improvement stores live off of residential and commercial buildings and all the amenities they require (flooring, cabinets, paint). No one wanted to upgrade their current home due to foreclosure fears, job-loss fears, depreciation of existing home values, and putting away ‘savings’ for the next rainy day that may come at any time.

Stores like Builders FirstSource (BLDR), Home Depot (HD), Lowes’ (LOW), and Lumber Liquidators (LL) all reduced staffing levels in 2007-08-09, and same store-level sales sequentially kept dropping and dropping. Like all retailers the Home Improvement stores tried reducing inventories for their balance sheets, tried catching up on accounts receivables, tried putting on specific and even store-wide promotions, and in some cases were forced to close a store.

This was all in the U.S. and international companies like Home Depot were getting some support from foreign operations, but not much. At one point in its history Home Depot was opening an ‘Orange Big Box’ every day of the year; but not through the recession.

As construction crews dwindled in the U.S. and General and Sub Contractors in both residential and commercial building looked for work in new government sponsored building (or on a lot of cases construction tradesmen just got out of the business all together), Home Improvement stores began relying on a change of buying habits: from the ‘top-of-the-line’ to the ‘what-will-get-the-job-done’ shift.

Analysts on Wall Street kept downgrading their ratings on Home Improvement stores and banks and lenders (who knew well of the housing meltdown) retracted what were once free and flowing credit lines. As an industry, Home Improvement slowed to a crawl.

In 2010 with some easing in housing, the Home Improvement business began to see ‘glimmers of light’ from consumers. Sales picked up and then dropped, but at least in certain periods they were picking up. With the industry getting some perks from short-sale ‘fixer-upper’ demand and sellers ‘having to’ make residents more presentable to ‘make a sale’ Home Improvement stores started a roller coaster ride in share value.

Look at Home Depot: At; $30 in March, $36 in April, below $27 in June, and now back to $34. Quite a ride.

Some share holders were ‘Hammered’ and others, the ‘Long-Term’ others, just tightened their safety harnesses for the ride. With Consumer Confidence UP this holiday season, the Home Improvement stores will ride that wave as well. This quarter should put some plus-side revenues on their books. January and February are notorious for retailers as a time to re-do inventories, consider their taxes, and cut back part-timers. So what will 2011 from March on hold for Home Improvement?

I believe good things… perhaps not the ‘glory days’ level of business, but ‘housing, mortgage, and foreclosure concerns (including Freddie and Fannie) will be dealt with more assertively and Home Improvement stores will benefit directly. People are starting to buy cars again in the U.S. (the U.S. consumers’ second biggest expenditure) and they will then turn to the house they own (the biggest expenditure for investment or living or both motivations for that matter) and will buy patio furniture again, fix the deck, get a new window for the back bedroom, and carpet the hall.