Home Improvement Will Bounce Back Next Year
It's been a rough year for companies behind big-ticket home projects, but relief may be on the way.
Shares of Trex (NAS: TREX) climbed 9% yesterday, and it wasn't because the leading maker of wood-alternative decking material posted blowout quarterly results. It may have seen net sales climb 12% to $67.9 million and posted a substantially narrower deficit of $0.03 a share, but analysts were expecting an even smaller loss on a 14% top-line boost.
It also wasn't Trex's guidance for the current quarter that resulted in a welcome wave of investor buying. Trex is targeting just $50 million to $55 million in net sales during the final three months of the year, well short of the more than $70 million that the pros were forecasting. Trex feels that Wall Street wasn't being realistic here. At this time a year ago, Trex was announcing that prices would go up for its Transcend line come 2011, fueling unseasonably strong sales by forward-thinking shoppers trying to get in ahead of the hike.
If the past isn't as good as Wall Street was expecting and the present is even worse, why would Trex shares move higher yesterday? Well, the decking leader's initial guidance for 2012 is pretty darn encouraging. Feedback from its annual distributor meeting finds Trex anticipating net sales climbing by at least 25% during the first quarter, growing "significantly" for all of 2012.
This is welcome news for Lumber Liquidators (NYS: LL) , the hardwood flooring specialist that hosed down its 2011 expectations just days before Trex spooked investors with a similar warning. The summertime swoon makes sense in retrospect. The economy is still iffy. Home prices are still searching for a bottom. Who wants to spend good money on new hardwood planks or an outdoor patio for a home that is worth less than its mortgage? Who can finance an improvement project under that scenario?
After years of pent up demand -- seeing any gains going to small-ticket home furnishing specialists Pier 1 (NYS: PIR) , Cost Plus (NAS: CPWM) , and Bed Bath & Beyond (NAS: BBBY) on goods that are cheap and portable in a foreclosure -- the real home improvement projects are finally creeping back into homeowner fancy.
At the time this article was published The Motley Fool owns shares of Lumber Liquidators Holdings.Motley Fool newsletter serviceshave recommended buying shares of Home Depot, Lowe's Companies, Lumber Liquidators Holdings, and Bed Bath & Beyond; and writing covered calls in Lowe's Companies. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.