Run in each Home Depot (NYSE: HD) of Lowe’s (NYSE: LOW) shops these days and there is a good chance that you will be struck by what you do not see: merchandise. Many of the shelves lack products, and what the stores have is displayed in a way to make the racks more full than they really are.
However, there is one area where home improvement warehouses cannot discolor a lack of merchandise – their carpentry departments. During a recent visit to my local Home Depot, the carpentry racks found practically clean picks, with only a few crazy pieces of dimensional wood scattered about.
While groceries were a bit better, prices on even the cheapest types of peat were exorbitant, and it was so in several of the areas DIY centers I visited. That does not bode well for income from Home Depot like Lowe in the coming quarters.
Image Source: Getty Images.
A cascading influence
The timber shortage is not the fault of any of the traders, but still a bit of damage caused by the coronavirus pandemic.
Despite being declared an essential sector, the forestry business was affected just like everyone else. Log companies reduced the number of trees that were harvested, wood mills closed, and wood did not receive pressure treatment.
However, sitting with nothing to do, consumers began to brighten up and add to their homes as homebuilders began to build in earnest. But with sign-up and milling activity slower than stopped, the hub improvement centers have been hit by a timber shortage, and their prices are high.
The shattered fallout from the pandemic
Data from the National Association of Home Builders shows that the framing of timber prices in the past month is 26% higher, and is almost double where they stood a year ago.
The situation is exacerbated by the ongoing trade war between the US and Canada, which resulted in tariffs of 20% imposed on Canadian softwood imports and caused carpentry prices to average 8% higher here in the US
With a framework of carpentry that builds about a fifth of the material cost of building a new home, and doubling that amount, the increased cost of building a home, adding an addition, or even just building a deck will add a steamer. plans.
And because restarting forest production all the way through the supply chain is not as simple as getting everyone back to work, it can take several weeks to get production back on track quickly. Manufacturers also still have to deal with a backlog of orders, so the timber shortage is a real threat to Home Depot and Lowe’s future performance.
Build on demand
Retailers have been major beneficiaries of consumer spending during the pandemic, with Home Depot reporting a 7% increase in revenue in the last quarter, hitting $ 28.3 billion, as U.S. comps jumped 7.5% year-over-year. Lowe’s sales rose 11% to $ 19.7 billion on a 12.3% increase in comps.
Because professional contractors have long been Home Depot’s primary customer target, the building materials segment is its largest contributor to revenue, accounting for $ 9.8 billion in revenue in the last quarter, and enjoying a 4% increase in sales in ‘ t last quarter.
Likewise, Lowe’s also saw a spike in demand, even though the contractor has been a relatively recent area of attention. But the new focus deserves, because revenue for construction products it was the least performing segment, with sales up more than 10% to $ 6 billion.
A mote in her eye
Both home remodeling centers are scheduled to report revenue in the next two weeks, and although this period may not reflect the full impact of the shortage of wood and timber that has accelerated in recent weeks, expect a calculation to come soon.
Shares of Home Depot are up 24% in 2020, almost doubling from their lowest in March, while Lowe’s share is 28% higher to date and 135% higher than its nadir (as close to Friday).
The long-term prospects for the Home Improvement Centers are clear as consumer demand remains strong. But this may be the highlight for both retailers at the moment, so investors may want to wait before building a position.
