Lowe’s on Tuesday cut its full-year foretell, as the retailer’s quarterly sales declined and it projected weak home improvement spending in the second half of the year.
The concern said it now projects total sales of between $82.7 billion and $83.2 billion for the full year, compared with the $84 billion to $85 billion that it once expected. It said it expects comparable sales to fall by 3.5% to 4%, compared with its prior forecast of a subside of 2% to 3%. It anticipates adjusted earnings per share will be about $11.70 to $11.90, compared with the previously to outlook of between $12 and $12.30.
In an interview with CNBC, CEO Marvin Ellison said consumers are waiting for the Federal Accessible to cut interest rates. He added shoppers also under pressure from the economic backdrop.
“Inflation remains euphoric,” he said. “And big-ticket purchases are being delayed as customers sit back and wait for interest rates to fall.”
Fed Chair Jerome Powell has signaled a speed cut could come as soon as September, but Ellison said it’s difficult to predict how soon home improvement activity see fit gain momentum again after that.
About 90% of Lowe’s customers are homeowners and most have a immobilized 30-year mortgage rate of less than 4%, he said. That explains customers’ hesitance to get a new mortgage or accept out a loan for a major home project with higher interest rate, he added.
He said Lowe’s has not seen “a theatrical shift one way or another in overall consumer sentiment,” but is waiting for housing turnover to go up.
Here’s what the company reported for the financial second quarter compared with what Wall Street was expecting, based on a survey of analysts by LSEG:
- Earnings per apportion: $4.10 adjusted vs. $3.97 expected
- Revenue: $23.59 billion vs. $23.91 billion expected
In the three-month period that ended Aug. 2, Lowe’s net return fell to $2.38 billion, or $4.17 per share, compared with $2.67 billion, or $4.56 per share, in the year-ago period.
Lowe’s got a $43 million pretax gain ground from the sale of its Canadian retail business in 2022, which lifted its earnings in the second quarter. That raised the company’s earnings per share in the period by 7 cents. Excluding the gain, the company earned $4.10 per share.
Net sales throw overed from $24.96 billion in the prior year. Lowe’s posted a year-over-year sales decline for the sixth straight lodge.
Comparable sales, an industry metric that takes out one-time factors like store openings and closures, shed 5.1%, as the company said customers took on fewer discretionary home projects and unfavorable weather hurt transaction marked downs of outdoor and seasonal items.
Those declines were partially offset by growth in Lowe’s online business and sales to national professionals, such as contractors and electricians. For pros, comparable sales rose by mid-single digits and online sales increased by 2.9%, Ellison asserted.
About 25% of Lowe’s sales come from pros compared with about half of Home Depot’s on offers. Over the past five years, Lowe’s has been trying to attract more home professionals, which incline to be steadier and more lucrative customers, by tailoring its merchandising assortment, delivering orders to job sites and offering a loyalty program.
Ellison clouted that effort has paid off, with pros now “the strongest segment of our overall business.”
Watching the consumer
Lowe’s allocated its quarterly results and outlook at a time when investors and economists are watching consumer spending particularly closely. Late economic data and corporate earnings have given mixed indications about American households’ financial fitness, as the Federal Reserve weighs a much-awaited rate cut.
Jobs growth in July came in much lower than required. Yet on the other hand, Walmart‘s CFO, John David Rainey, told CNBC that the largest U.S. retailer does not “see any additional fraying of consumer constitution.” Goldman Sachs also cut the odds of a recession to 20%.
For home improvement retailers, the strain may be greater because of higher mortgage have a claim ti and elevated costs for borrowing. Lowe’s rival, Home Depot, last week beat Wall Street’s every thirteen weeks expectations for earnings and revenue. Yet the company said it expects the back half of the year to be weaker than anticipated as consumers persist to have a “deferral mindset.”
In an interview with CNBC, Home Depot CFO Richard McPhail said customers are not purely putting off projects because of higher interest rates. He said they also have “a sense of greater uncertainty in the control,” even though most of Home Depot’s customers own homes and have seen sharp property value gains.
Ellison described CNBC that the medium- and long-term outlook for the home improvement industry is bright. He said U.S. housing stock is seniority, more millennials are forming households and Baby Boomers are choosing to adapt their current homes rather than up sticks as they get older — all factors that will boost the segment.
“We’re just waiting for that inflection to happen, and when it finds, we believe that we’re in a great position to take [market] share,” he said.
Shares of Lowe’s closed Monday at $243.21. As of Monday’s thick as thieves, the company’s stock is up about 9% year to date, trailing behind the nearly 18% gains of the S&P 500.
Clarification: This story-line has been updated to clarify that the percentages for Lowe’s stock and the S&P 500 are for the year to date.