Retail renovation: home Depot outperforms Lowe's--except when it comes to CEO pay.

• Author: Mildenberg, David

When your competition beats you 19 straight times, it's tough to call it a rivalry. That will be the elephant in the room as stockholders gather for Mooresville-based Lowe's Cos.' annual meeting May 30. Ending that losing streak is a key test for Robert Niblock, whose 10th anniversary as CEO of the state's third-largest public company looms next year.

For 19 consecutive quarters, Atlanta-based The Home Depot Inc. has reported same-store sales have increased at a faster pace than Lowe's. It's a reversal from 2004 through late 2008, when Lowe's had its own 19-quarter streak while Home Depot stumbled under then-CEO Robert Nardelli. Same-store sales, revenue from locations open at least a year, matter because the companies no longer depend on new stores for growth. Lowe's, which was opening 150 a year in the mid-2000s, has plans for only six in the U.S. this year, plus five in Mexico and four in Canada. Home Depot is opening eight. Together, they have more than 4,000 stores, a majority opened since 2000.

"The downside of the industry's setup is that you have a very easy comparison between Home Depot and Lowe's, and either you do better or you don't," says Walter Todd, chief investment officer of Greenwood Capital Associates LLC. The Greenwood, S.C., company manages more than $900 million, some in Home Depot shares.

The divergence isn't just sales. Home Depot earns about 10 cents per dollar of sales before interest and taxes, and that margin may reach 14% within three years, Bank of America Merrill Lynch analysts forecasted in March. Lowe's operating margins are about 7%, with Niblock pledging to reach almost 10% in 2015.

Home Depot's success since the economy cratered in 2008 and 2009 reflects its focus on homebuild-ers and contractors who make up more than a third of the company's sales. Pros account for about 28% of sales at Lowe's, which targets retail customers, particularly women, who make the majority of home-improvement decisions. It's not the hardware store L.S. Lowe opened in North Wilkesboro in 1921 or the business son-in-law Carl Buchan took over in 1946 and built into a 14-store chain before a heart attack killed him at age 44 in 1960 or even the Lowe's that relied on tradesmen for 60% of sales as recently as 1982.

Since the housing market stabilized in 2011 and 2012, the biggest spenders on hardware and lumber have been builders and renovators working on high-priced homes, says Ken Perkins, president of Retail Metrics Inc., a...