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One reason Lowes and Home Depot had rocky Q1 earnings: Check the weather (and store locations)

9 months ago by James Mattone in Markets
This is actually great weather for home improvement stores like Home Depot. If it was rain? Not so much. Credit: Getty Images

Both Home Depot ($NYSE:HD) and Lowe's ($NYSE:LOW) announced earnings over the past few days, with the former beating earnings despite a decrease in same store sales, and the latter flip-flopping: same-store sales were up, but they missed by a 11 cents a share.

To give some perspective on this battle between the two home improvement titans, here's what their respective retail footprints look like:

In looking at the chains' respective retail footprints, combined with rough February weather, it's no secret that both companies struggled during a historically wet February.

Average Precipitation, February 2019, along with Home Depot and Lowes locations

Southern California saw its drought end due to a dreary month, and the American Southeast also had a wet month. These two regions in particular were so bad, the National Centers for Environment Information reported that, "The February precipitation total for the contiguous U.S. was 3.22 inches, 1.09 inches above average. This was the second highest February precipitation total on record for the nation."

Even though the Northern United States had plenty of snow — usually a harbinger of sales for home improvement — Home Depot and Lowe's have 1,546 combined stores in California and the Southeastern United States (Home Depot has 796, Lowe's has 750). In other words, Lowe's had 43.53% exposure to these states, while Home Depot had 39.99% exposure.

Home Depot specifically cited this bad weather in its earnings, while Lowe's, a company that missed earnings and had higher exposure, did not highlight it as much. Instead, Lowe's CEO Marvin Ellison said in a company release that, "the unanticipated impact of the convergence of cost pressure, significant transition in our merchandising organization, and ineffective legacy pricing tools and processes led to gross margin contraction in the quarter which impacted earnings."

In looking at these companies' retail footprints, as well as others that are affected by weather (i.e. hospitality companies, airlines, etc.), it may be wise to look at their exposure to states and regions impacted by rough seasons when predicting future success. And, especially as the global climate changes daily due to global warming and other factors, weather in general may be one of the most important economic factors of our society, if it hasn't been that way for thousands of years.

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James Mattone

James is the Associate Editor at Thinknum Media, mainly covering video games, food, and tech news, but not afraid to head into Sephora or beauty brands if need be...

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