A slowdown in home improvement sales due to high interest rates hit Lowe’s (LOW) second-quarter earnings.
Lowe’s on Tuesday reported quarterly sales of $23.59 billion, down 5.6% from a year ago and below expectations.
“We all know we’re in an environment of higher interest rates and higher inflation, so DIY customers are just sitting on the sidelines waiting for some changes to happen,” Chief Executive Marvin Ellison said on a conference call to announce second-quarter earnings.
Same-store sales, a key measure of a retailer’s performance, fell 5.1%, beating expectations of a 4.43% decline. The company cited “continued pressure” on big-ticket DIY projects like flooring and kitchen and bathroom remodeling. It also said bad weather had affected seasonal and outdoor sales.
The result was worse than the 3.3% quarterly decline that rival Home Depot (HD) reported a week ago.
Lowe’s, which has about 75% of its business from DIY customers, said it saw strong same-store sales at its professional and online businesses. Adjusted earnings per share were $4.10, beating expectations of $3.97.
This marks the seventh consecutive quarter of declining sales for the home improvement store.
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Lowe’s lowered its full-year 2024 outlook after coming under pressure in the first half of the year.
The company now expects total sales of $82.7 billion to $83.2 billion for the current fiscal year, down from its previous forecast of $84 billion to $85 billion. Same-store sales are now expected to decline 3.5% to 4%, worse than the 2% to 3% decline it had previously expected from a year ago.
Jefferies analyst Jonathan Matuszewski said the guidance cut was “widely expected” and “appropriate given the volatile macro environment.”
The exterior of a Lowe’s Home Improvement store at Buckhorn Plaza Shopping Center. (Paul Weaver/SOPA Images/LightRocket via Getty Images) (SOPA Images via Getty Images)
Both Lowe’s and Home Depot are finding their businesses in jeopardy as homeowners and prospective buyers wait for the Federal Reserve to lower interest rates.
Home Depot’s second quarter was its seventh consecutive quarter of declining sales, with U.S. same-store sales falling 3.6%.
Foot traffic and average ticket size were down 1.8% and 1.3%, respectively.
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Like Lowe’s, Home Depot was more cautious about its full-year sales outlook.
Comparable sales for the current fiscal year are now expected to fall 3% to 4%, worse than the 1% decline previously expected.
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Home Depot said the company is “not on track” to see same-store sales decline 4% at this time, but that “this represents increasing pressure on consumer demand.”
Joe Feldman of Telsey Advisory Group said weak performance from home improvement suppliers such as Stanley Black & Decker (SWK), Floor & Decor (FND), and Tractor Supply (TSCO) has “cemented” concerns about the industry.
“I think the housing market has been suffering from tight monetary policy and high mortgage rates, much higher than we’ve seen for many years prior to the 2023 rate hiking cycle,” Goldman Sachs chief economist Jan Hatzius said on Yahoo Finance’s Morning Brief.
Hatzius added, “I think the housing market is still weak. You can see that in the housing starts last week. You can see that in the home builder index. But I expect we’ll see gradual improvement as interest rates come down.”
“Attention will be focused on the outlook for a recovery beginning in fiscal 2025, as Lowe’s DIY business is expected to see a solid recovery while Pro should continue to gain share,” TD Cowen analyst Max Lacrenko wrote in a client note.
Ellison said Lowe’s is poised to benefit from the economic recovery and gain market share once DIY customers return.
Home Depot and Lowe’s shares have each underperformed the S&P 500 by 18 percentage points over the past year, according to data from Yahoo Finance.
Here’s how Lowe’s second-quarter report compared to Wall Street expectations, based on Bloomberg consensus data.
Revenue: $23.59 billion, down 5.6% YoY (expected to be $23.9 billion)
Adjusted earnings per share: down 10.1% year over year to $4.10 (expected to be $3.97)
Same-store sales growth: -5.1% vs. 4.43% estimate
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Brooke DiPalma is a senior reporter at Yahoo Finance. Follow @ on X.Brooke DiPalma Or email me at bdipalma@yahoofinance.com
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