The next chapter in the Lowe's (LOW) turnaround story is on deck for November 20. Are they poised to make up ground vs Home Depot? Will higher interest rates derail the housing market and put a dent into Lowe's turnaround effort? We used Amenity Viewer, to spot recent trends in the home improvement retail ecosystem and identify what investors should be looking for on the LOW earnings call.  

Lowes: Still on Solid Ground?

A quick look in Viewer shows a stabilizing trend in Lowe's as of its Q2 earnings call. Our analysis resulted in an Amenity Score of 43 in Q2 vs 38 in Q1:

Going deeper into the specific drivers, we divide our analysis into two categories: Cyclical and Company-Specific.

1. Cyclical Question: Impact of Higher Interest Rates on Housing

A look at the sentiment coming from some key players shows that Housing is starting to slow:

D.R. Horton: November 8, 2018

• "...our square footage across all 4 brands declined slightly sequentially, which would be right along with what we've been saying for a while now is as interest rates rise, people who need or want to buy a house just buy a little less house."

Goosehead Insurance: November 5, 2018

• "...a larger-than-expected slowdown in the housing market was a headwind we battled during Q3."

Builders FirstSource: November 2, 2018

• "Time will tell, obiously, but it still feels like more of a pause, a speed bump, whatever you want to call it."

Pulte: October 23, 2018

• "...we've acknowledged the last couple of quarters have been a little bit more challenging and we've seen flattish type growths."

Conversely, Home Depot put on a brave front on its November 13th call:

Home Depot: November 13, 2018

• "Housing related metrics are moderating, but the drivers of home improvement spend are supportive of our outlook."
• "And as we look at the future and what’s happening, fundamentally, you got to look at the economy and the economy is good. People are employed, they have more income, they’ve got more to come with tax reform. So fundamentally, we feel very good about just the drivers of the spend in our business."
• "...we went back to 2000 time frame, where the country was in fairly mild recession and our comps at that point were flat. So we modeled flat comps to say that’s the reasonable downturn. I don’t know if it’s reasonable, but I think it’s reasonable, and staying true to our investment plan."

2. Weather and Supply Chain Among Company-Specific Issues to Watch

Hurricanes becoming a headwind to reported growth rates:

Home Depot: November 13, 2018

• "We estimate that hurricane-related sales positively impacted US comps by 60 basis points in August, but negatively impacted US comps by 80 basis points in September and 120 basis points in October."

Lowe's was still working through some turnaround disruption last quarter:

Lowes Q2 Earnings: August 22, 2018

• "Reset challenges adversely impacted our performance in fashion fixtures, specifically light bulbs and in paint, throughout the quarter."

Transportation costs to remain a headwind, but likely not worse than what LOW saw last quarter:

Home Depot This Quarter:

• "...higher supply chain and transportation costs caused approximately 23 basis points of gross margin contraction"

Lowe's Last Quarter:

• "Higher transportation costs negatively impacted gross margin by 20 basis points."

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This communication does not represent investment advice. Transcript text provided by S&P Global Market Intelligence.

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