Sluggish performance in the home improvement sector due to high interest rates weighed heavily on Lowe’s (LOW) second-quarter profit and loss.
Lowe’s reported on Tuesday that quarterly sales fell 5.6 percent year-on-year to $23.59 billion, falling short of expectations.
“We all recognize that we live in an environment of high interest rates and inflation, and that the home improvement customer is simply waiting for things to turn around,” said CEO Marvin Ellison on the second-quarter earnings call.
Store sales – a key indicator of retail performance – fell 5.1 percent, more than the expected 4.43 percent decline. The company cited “continued pressure” on more expensive home improvement projects such as flooring and kitchen and bathroom renovations. It also said bad weather hurt seasonal and outdoor sales.
The result was worse than the 3.3 percent decline that competitor Home Depot (HD) reported for the quarter a week ago.
While home improvement customers make up about 75% of Lowe’s business, the company reported positive sales in its Pro and online stores. Adjusted earnings per share were $4.10, beating estimates of $3.97.
For the DIY retailer, this is the seventh consecutive quarter of declining sales.
Read more: Best Credit Cards for Home Improvement in August 2024
Lowe’s subsequently lowered its full-year 2024 forecast after the company came under pressure in the first half of the year.
The company now expects to end the year with total sales of $82.7 billion to $83.2 billion, down from the $84 billion to $85 billion previously expected. Comparable-store sales are expected to decline 3.5 percent to 4 percent, worse than the 2 percent to 3 percent year-over-year decline previously forecast.
Jonathan Matuszewski, an analyst at Jefferies, said the downgrade was “widely expected” and “appropriate given the turbulent macroeconomic environment.”
While homeowners and potential buyers wait for interest rate cuts from the Federal Reserve, both Lowe’s and Home Depot find themselves in a precarious business situation.
For Home Depot, the second quarter was the seventh consecutive quarter of negative sales growth. Sales at its U.S. stores fell 3.6%.
Both customer frequency and average ticket value fell by 1.8% and 1.3% respectively.
Read more: Lowe’s vs. Home Depot – Which Credit Card Should You Use for Your Next Home Improvement Project?
Similar to Lowe’s, Home Depot also struck a more cautious tone in its full-year sales forecast.
Comparable sales are expected to decline by three to four percent in the current fiscal year, which is even worse than the previously expected decline of one percent.
Home Depot said that while the company’s comparable sales are not currently expected to decline 4 percent, this represents “increasing pressure on consumer demand.”
Weak results from home improvement retailers such as Stanley Black & Decker (SWK), Floor & Decor (FND) and Tractor Supply (TSCO) are “reinforcing” concerns in the sector, said Joe Feldman of Telsey Advisory Group.
“I think the housing market has suffered from tight monetary policy and high mortgage rates, which are much higher than what we have seen in the many years leading up to the 2023 rate hike cycle,” Jan Hatzius, chief economist at Goldman Sachs, said in Yahoo Finance’s Morning Brief.
Hatzius added: “I think housing construction is still weak. We saw that in the housing starts numbers last week. We saw it in the housing index. But I would expect that to gradually improve as interest rates come down.”
In a note to clients, TD Cowen analyst Max Rakhlenko wrote: “Attention will soon turn to the shape of a potential recovery from fiscal 2025 onwards, with Lowe’s home improvement business well positioned for a solid recovery while Pro should continue to gain market share.”
Ellison said Lowe’s is poised to capitalize on the recovery and gain market share once home improvement enthusiasts return.
Home Depot and Lowe’s shares each lagged the S&P 500 by 18 percentage points last year, according to Yahoo Finance data.
Here’s what Lowe’s reported for the second quarter, compared to Wall Street estimates, based on Bloomberg consensus data:
-
Revenue: -5.6% year-on-year to USD 23.59 billion, compared to the estimate of USD 23.9 billion
-
Adjusted earnings per share: -10.1% year-on-year to $4.10, compared to the estimate of $3.97
-
Sales growth in comparable stores: -5.1% compared to the estimate of 4.43%
Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on X at @Subscribe or email her at [email protected].
Click here to get all the latest retail stock news and events to optimize your investment strategy
