Why Lowe's Is the More Attractive Play in the Home Improvement Sector

The home improvement retail sector, dominated by giants like Lowe's and The Home Depot, has long been a barometer of U.S. consumer confidence. Yet, as the industry matures, the race for long-term value creation hinges not just on scale but on operational agility and capital discipline. While Home Depot has historically led in metrics like return on invested capital (ROIC), recent trends suggest Lowe's is emerging as the more compelling investment, driven by its strategic reinvention and improving efficiency.

Operational Efficiency: Closing the Gap

Inventory turnover remains a critical metric for retailers, reflecting both demand responsiveness and cost control. As of Q2 2025, Lowe's reported an inventory turnover ratio of 3.19 annually, up from prior periods, while Home Depot's ratio fell to 4.6x, down from 4.9x in the previous quarter Lowe’s SWOT Analysis 2025: Assessing Strengths, Weaknesses^[1]Home Depot Earnings Q2 2025 - Report | HD News & Analysis^[3]. At first glance, Home Depot's higher turnover appears superior. However, this masks Lowe's progress: its quarterly inventory turnover of 0.97 (annualized to ~3.88) suggests sequential improvement, outpacing Home Depot's stagnation.

Lowe's has also invested heavily in supply chain innovations, including AI-driven demand forecasting and warehouse automation, to reduce excess stock and accelerate restocking Lowe’s SWOT Analysis 2025: Assessing Strengths, Weaknesses^[1]. These efforts are paying off. For instance, its “Pro” division—targeting commercial customers—now accounts for a growing share of sales, with higher margins and more predictable demand than retail segments. By contrast, Home Depot's recent acquisitions, such as SRS Distribution and GMS, have strained its capital structure, leading to a 4.7-percentage-point drop in ROE to 27.2% over the trailing twelve months Home Depot Earnings Q2 2025 - Report | HD News & Analysis^[3].

Capital Allocation: Quality Over Quantity

While Home Depot's ROIC of 31.9% (as of Q2 2025) exceeds Lowe's 25.2% Home Depot Earnings Q2 2025 - Report | HD News & Analysis^[3], this advantage is eroding. Home Depot's aggressive M&A strategy, including its pending acquisition of GMS, has diluted returns by spreading capital too thin. According to a report by Panabee, these deals have extended its average inventory processing period to 81 days, signaling inefficiencies in integrating new assets Lowe’s SWOT Analysis 2025: Assessing Strengths, Weaknesses^[1].

Lowe's, meanwhile, has taken a more surgical approach. Its acquisition of Foundation Building Materials (FBM) in 2023 has already boosted Pro sales and margins, with the division contributing to 1.1% year-over-year comparable sales growth in Q2 2025 Home Depot Earnings Q2 2025 - Report | HD News & Analysis^[3]. More importantly, Lowe's ROIC of 25.2%—though lower than Home Depot's—reflects disciplined reinvestment in high-return initiatives, such as its “Lowe's Pro” platform and digital tools for customer engagement Home Depot Earnings Q2 2025 - Report | HD News & Analysis^[3].

The Long-Term Edge

The key to long-term value creation lies in balancing growth and efficiency. Lowe's negative ROE of -49.95% in Q2 2025 Lowe's ROE 2010-2025 | LOW - Macrotrends^[2] is a red flag, but it stems from one-time charges and strategic investments, not operational failure. By contrast, Home Depot's ROE decline underscores structural challenges: its capital is increasingly tied up in overextended supply chains and underperforming acquisitions.

Conclusion

Lowe's may not yet match Home Depot's ROIC, but its trajectory is stronger. By prioritizing operational efficiency, targeted M&A, and Pro customer retention, Lowe's is positioning itself to outperform in a sector where margin stability and capital discipline will define winners. For investors seeking long-term value, the case for Lowe's is not about short-term metrics—it's about a company that is reinventing itself for a future where agility matters more than scale.