Gap narrows between Lowe's and Home Depot

Lowe's latest earnings beat shows improvement

Lowe's is tired of playing second fiddle to Home Depot.

During the first quarter, the home improvement retailer recorded a comparable-sales increase of 7.3 percent, including a 7.5 percent lift from its U.S. business.

Those figures exceeded the results reported by Home Depot one day earlier, when the chain reported a first-quarter comparable-sales gain of 6.5 percent and a 7.4 percent gain in the U.S.

The quarter marked the first three-month period since second quarter 2010 that Lowe's domestic comparable sales growth topped Home Depot's, according to Citi analyst Kate McShane.

It was also just the second time in the last 27 quarters that Lowe's topped Home Depot on this measure for their overall businesses, according to Retail Metrics. Prior to this quarter, the last time Lowe's overall same-store sales topped those at Home Depot was second quarter 2015.

Lowe's cited demand from its professional shoppers as one contributor to its big same-store sales beat. Analysts had been expecting the company to report a comparable sales gain of roughly 4 percent.

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Carter Harrison, an analyst at Conlumino retail research firm, said Lowe's latest marketing and advertising campaigns, as well as better merchandise, likely helped drive nonprofessional shoppers into its stores.

"One of the challenges for Lowe's is that while it is a significant player in the market, it all too often plays second fiddle to Home Depot — which remains more of a 'go-to' destination, especially for home improvement shoppers," Harrison told investors.

"Lowe's is positioning itself well as a customer-centric player for the non-expert: a potentially weak spot for its larger rival. In our view, this positioning is well thought through and gives Lowe's an opportunity to differentiate as well as steal share from non-home improvement players in areas such as kitchens and bathrooms."

An employee helps a customer shop for a sander at a Lowe's home improvement store in Chicago.
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Still, Lowe's win versus Home Depot was not perfect. For one, Home Depot's comparison was 1.5 points tougher. For another, Lowe's gross margin contracted during the quarter, something management attributed to strong performance in lower-margin categories and higher-than-expected participation rates in its promotional offers.

Nonetheless, the company's shares rose 2.4 percent in morning trading. Oppenheimer analyst Brian Nagel told CNBC that investors would be focusing more on the retailer's same-store sales growth.

"Home improvement retail ... is very much a bright spot in an otherwise weakish consumer environment," he said.