In a sign of growing economic pressures on the home improvement industry, Lowe’s (LOW) has announced a significant downward revision of its annual profit and sales forecasts.
This move echoes recent projections from its larger competitor, Home Depot (HD), painting a sobering picture of the current market landscape.
The home improvement sector, once buoyed by a surge in pandemic-era renovations, is now grappling with a perfect storm of economic challenges. Chief among these are rising borrowing costs and elevated mortgage rates, which have put a damper on new home sales and, consequently, on the demand for home improvement products and services.
Recent data from Placer.ai underscores this trend, revealing a noticeable dip in store traffic for both Lowe’s and Home Depot during May and June. This decline correlates directly with the slowdown in new home sales, highlighting the intricate relationship between the housing market and the fortunes of home improvement retailers.
Adding to the sector’s woes, an unseasonably warm spring appears to have disrupted typical consumer behavior. Many homeowners postponed their usual seasonal lawn and home renovation projects, further impacting sales for both Lowe’s and Home Depot.
The numbers tell a stark story for Lowe’s. The company reported net earnings of $2.4 billion for the quarter ending August 2, 2024, with diluted earnings per share (EPS) of $4.17, reflecting an 8.55% decrease compared to the $4.56 EPS recorded in the same quarter of 2023. Meanwhile, total sales for the quarter were $23.6 billion, compared to $25.0 billion in the prior-year quarter. Comparable sales for the quarter decreased 5.1%.
In response to these challenging conditions, Lowe’s has adjusted its full-year outlook. The company now projects adjusted earnings per share in the range of $11.70 to $11.90, down from its previous estimate of $12.00 to $12.30.
Perhaps most tellingly, Lowe’s has also revised its expectations for comparable sales in 2024. The company now anticipates a more severe decline of 3.5% to 4%, a significant adjustment from its earlier forecast of a 2% to 3% drop.
These revisions suggest that the road to recovery for the home improvement sector may be longer and more arduous than initially anticipated. As economic uncertainties persist and consumer spending patterns continue to evolve, companies like Lowe’s and Home Depot find themselves navigating an increasingly complex market landscape.
Industry observers will be closely monitoring how these retail giants adapt their strategies in the face of these challenges. Will they pivot towards more budget-friendly offerings? Might they explore new service models to attract cost-conscious consumers? Or could they potentially seek growth in commercial markets to offset weaknesses in the residential sector?
As the home improvement industry grapples with these headwinds, it’s clear that adaptability and innovation will be key to weathering the current economic storm. For now, Lowe’s sobering forecast serves as a bellwether for the sector, signaling that a return to robust growth may require more than just a fresh coat of paint.
Price Action
Lowe’s shares fell 0.50% to $242 per share in pre-market trading.
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