Home improvement retailers The Home Depot Inc. (Home Depot; issuer
default rating of 'A-') and Lowe's Companies, Inc. (Lowes) reported
solid 4Q12 results this week, underscoring Fitch Ratings' view that the
housing recovery is in its early stages, although we note that the
recovery will continue to occur in fits and starts.
Home Depot saw same store sales increase 4.6% in 2012, while Lowe's saw
a more moderate increase of 1.4% as it strives to improve its value
proposition and merchandise differentiation. We project Home Depot and
Lowe's will generate same store sales growth of approximately 2%-4%,
which is slightly below our forecast for 4% growth in total home
improvement spending this year. This reflects, in Fitch's view, a
slightly faster growth rate in sales channels serving professionals.
With combined U.S. revenues of $125 billion, Home Depot and Lowe's
comprise less than one-half of the total home improvement market, which
is estimated to be about $280 billion. Both retailers also sell to
commercial customers, although the bulk of their sales are
The 4.0% growth in home improvement spending projected for 2013 follows
an estimated growth of 4.5% during 2012. Home remodeling spending should
continue to benefit from the improvement in housing turnover this year.
We expect existing home sales to advance 7.7% this year, while new
single-family home sales are forecast to increase 22.0%.
Growth patterns in the intermediate term are likely to be below what the
industry experienced during the previous housing boom and the early part
of the past decade due to slower growth in the U.S. economy and only
moderately improved housing market conditions. Growth in this segment
will also be restrained by tight bank lending standards, which will make
it difficult for homeowners to use credit to finance remodeling
projects. As such, we continue to expect spending for big-ticket
remodeling projects that will lag the overall growth in the home
Additional information is available on www.fitchratings.com.
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