Walk into any The Home Depot (New York Stock Exchange: HD) Either Lowe (New York Stock Exchange: Low) In shops these days, you are likely to be moved by something you can’t see: merchandise. Many shelves lack products, and store displays make the shelves look fuller than they actually are.
However, in one area, home improvement warehouses cannot hide the shortage of goods-their timber department. A recent visit to my local Home Depot found that it was actually almost a clean timber frame with a few scattered pieces of wood scattered around.
Although the sheet products are slightly better, even the cheapest plywood is expensive, just like a few DIY centers I̵
The timber shortage is not the fault of any retailer, but another collateral damage caused by the coronavirus pandemic.
Although it has been declared an essential industry, forestry is affected like everyone else. The logging company reduced the number of trees felled, closed the timber mill, and the timber was not treated under pressure.
However, sitting still without doing anything, as home builders began to build houses seriously, consumers began to renovate and build more houses. However, as logging and logging activities slowed down or stopped, housing renovation centers were hit by a shortage of timber, and their prices skyrocketed.
Aftermath of the pandemic
According to data from the National Association of Home Builders, the price of frame timber has soared by 26% in the past month, which is twice the level of a year ago.
What made the situation worse was the ongoing trade war between the United States and Canada, which resulted in a 20% tariff on softwood imported from Canada and an average increase of 8% in U.S. timber prices.
Since frame timber accounts for one-fifth of the cost of building materials for new houses, and the cost of sheathing is twice this figure, the cost of building houses, adding houses, or even just building decks will soar the dampers in the plan.
And since going from the supply chain to restarting forestry production is not as simple as getting everyone back to work, it may take weeks for production to return to normal. Manufacturers are also still facing a backlog of orders, so timber shortages pose a real threat to the future performance of Home Depot and Lowe.
Build on demand
During the pandemic, retailers have been the biggest beneficiaries of consumer spending. Home Depot reported a 7% increase in revenue in the last quarter to $28.3 billion, while U.S. company revenue increased by 7.5% year-on-year. Lowe’s sales increased by 11% to $19.7 billion, of which consolidated revenue increased by 12.3%.
Since professional contractors have long been Home Depot’s main customer targets, the building materials division is its largest source of revenue, accounting for $9.8 billion in revenue last quarter, and sales increased 4% last quarter.
Similarly, Lowe’s has seen a surge in demand, even though contractors have been an area that has only recently attracted attention. However, the new focus is paying off, as revenue from construction products is its second best performing segment, with sales increasing by more than 10% to $6 billion.
The dust in their eyes
The two home improvement centers plan to announce earnings in the next two weeks. Although this period may not show the full impact of the increased shortage of wood and wood products in recent weeks, it is expected to improve soon.
By 2020, Home Depot’s stock price has risen by 24%, almost twice its March low, while Lowe’s stock price has risen 28% so far this year and has surged 135% from its lowest point (as of Friday’s close).
As consumer demand remains strong, the long-term prospects of home improvement centers are bright. But this may be the highest point of the two retailers for the time being, so investors may want to wait before establishing a position.