The spring selling season is like Christmas for home-improvement retailers, and this year, Christmas is coming early.
Government data show December and January were the warmest such months in the contiguous U.S. since 2006, creating the most inviting climate for home improvement since the onset of the recession. The mild winter sets the sector up for a key test of underlying demand.
When Home Depot Inc. reports fiscal fourth-quarter results on Tuesday, it will preview homeowners' willingness to spend on sprucing up homes, tending gardens and renovating rooms this year, when an improving job market and hopeful housing signs are on their side.
Comprising November through January, the period is seasonally the weakest for home improvement and is typically marked by sales of snow shovels and the like. This year, exterior paint and live plants are just as likely to crop up among popular merchandise.
That is because the U.S. is having one of the warmest, least snowy winters on record. Last month was the fourth-warmest January going back to 1895 and had the third-lowest snow cover going back to the '60s, government data show.
The mild climes were bad for apparel stores and sporting-goods purveyors, which were stuck with boots, coats and snow-sport equipment. But companies like Home Depot and Lowe's Cos., the smaller rival that reports next week, are enjoying an early start to spring selling.
Weather has driven January demand for exterior paint up 31% in the Southeast from last year, estimates researcher .Planalytics Inc. When it comes to live plants, "you can't keep them in stores in the southern tier" because demand is so strong, Planalytics President Scott Bernhardt said.
Signs are also good at companies that supply the likes of Home Depot, the biggest home-improvement retailer in the U.S. by sales. Scotts Miracle-Gro Co. said point-of-sale figures were up more than one-fifth in the first five weeks of the year. The maker of lawn-and-garden products highlighted strong increases in Texas and Florida, two key early-season markets.
Granted, the felicitous weather also can hinder home-improvement retailers because of lost sales of winter merchandise. Planalytics estimates weather has driven down demand 24% in the snow-removal industry in the current season from a year earlier.
However, wintriness can damp traffic, too. A year earlier, record-breaking snow in some areas generated demand for snow throwers and ice salts, but Home Depot said the storms were an overall negative as shoppers stayed home.
Meanwhile, the job market is on the upswing. The Labor Department's unemployment rate hit its lowest level in nearly three years last month and has improved for five months straight.
The housing market, though still weak, has hopeful signs: Home builders' sentiment rose to the highest level in nearly five years in February. Anticipation of a housing recovery has driven up shares of Home Depot and Lowe's, analysts say. Home Depot stock is up about 24% in the last three months and Lowe's, 18%. That compares with a 12% gain in the S&P 500.
In Home Depot's results, momentum in the average ticket, sales per square foot and the volume of high-ticket items will gauge underlying home-improvement demand. Home Depot's average ticket was up 2.6% in the year-earlier period, after it had fallen for four years. Sales per square foot rose 4.1%, and tickets of $900 or more were up 9.6%.
The amount of acceleration in metrics like average ticket should hint as to how much homeowners are buying into job market and housing recovery—and how much they're snapping up snapdragons when they would normally be scraping ice off of windshields.