Pillars of Strength in Retail

 | Nov 20, 2013 | 7:48 AM EST
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The homework doesn't dovetail with the shares. That's how I felt about the way Best Buy (BBY), Home Depot (HD) and Dick's (DKS) traded in the wake of the earnings calls -- because all three were basically in all-systems-go mode for suppliers.

Home Depot loves to give you the state of the state, and the company continues to show you why it can have such positive comparable-store numbers -- namely because business is booming from continued house-price inflation. That's how you get your American stores to grow at 8.2%. For Home Depot, those numbers have come due to a combination of rising traffic and increased spending.

Why not? When you are buying a home these days, you are doing so because you need it -- but also because you now believe that, over time, it will start to appreciate in value again. We see these big 10% jumps in housing prices across the country, with some 20% areas thrown in, and we might want to believe that the housing market is in some inflationary spiral. But I think, after listening to the Home Depot call, that it's still in catch-up mode from where it left off.

I say that because Home Depot, beyond giving you a depiction of the psyche of the consumer, also tells you something else. The pro business -- which is the business that comes when people get professionals to both build and renovate their houses, instead of doing it themselves -- has continued to grow at a slightly faster pace than the consumer business has done. That's excellent news for hiring. In fact, it's one of the few bright spots out there, other than those seen in social, mobile and cloud technology, oil and gas and healthcare.

What merchandise is selling? Pretty much everything. That's also good news, because at times there had been aisles at Home Depot that simply weren't moving as well as others were. Now you've got positive comps in kitchens, lighting, décor, lumber, electrical and indoor garden. Numbers for all of these were above the company's average sales. Millwork, flooring, plumbing, outdoor garden, building materials, hardware and tools were positive, but below the company average.

My takeaways there: I would have to believe that Fortune Brands Home and Security (FBHS) and Masco (MAS) are doing pretty darned well, although I wouldn't be jumping up and down for Stanley Black & Decker (SWK) off of that. I wonder if Lumber Liquidators (LL) is actually taking share in flooring, given how well its numbers are doing. It's certainly worth pondering.

Home Depot's new enhanced-appliance showroom, when coupled with the online presence, yielded double-digit comps growth for appliances. Any check of the website or the store would tell you that Whirlpool (WHR), which was downgraded Tuesday by a prominent brokerage house, is a big winner.

In perhaps the best and most pointed metric, Home Depot called out the new Cree (CREE) TrueWhite bulb as a great seller. That's because, as executive vice president of merchandising Craig Manear points out, the bulb "gives off some of the best natural color when compared to other LED bulbs." There are two takeaways there. First, that's terrific -- maybe my house won't look so two-toned outside. Second: You have, to once again, take a look at Cree shares. Even though the stock is up 59% for the year, it's still way off its highs.

Moving on to Dick's, the callout is real simple: Apparel and footwear are selling well. Both Nike (NKE) and Under Armour (UA) are mentioned positively. That said, there was an odd interchange in the conference call about how Nike is opening stores that are competitive to Dick's. That was met with a riposte that Dick's is doing some private-label apparel that's selling well, too. I reiterate that Under Armour is the buy here.

Finally, regarding Best Buy, it looks as if the tablet is the standout. I know that Apple (AAPL) has become a hated equity, but I keep hearing good things, so I can't join the nitpicker mob. You did get a nice Chrome call-out for Google (GOOG), but that's just icing on the Google lovers' cake.

All three chain stores -- Home Depot, Dick's and Best Buy -- are pictures of strength, not weakness. All three stocks should be bought, not sold, on share weakness, despite whatever the "action" says about how well the companies performed. They have performed superbly against both their fields and against retail in general.

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