Lowe’s, the home improvement retailer, released its fiscal second-quarter results, which showed a mix of positive and negative trends. While consumers engaged in springtime projects, helping to offset the decline in home improvement demand, the company slightly missed expected sales, even though it exceeded Wall Street’s earnings estimates. Despite these challenges, Lowe’s maintained its full-year forecast, projecting total sales between $87 billion and $89 billion, with a 2% to 4% decrease in comparable sales for the fiscal year and adjusted earnings per share ranging between $13.20 and $13.60.
During an investor call, CEO Marvin Ellison expressed optimism about the long-term outlook for the home improvement industry due to aging houses and their limited availability in the US. However, he acknowledged that the business would face difficulties in the short term. Ellison stated that consumer sentiment indicated a decrease in discretionary spending on do-it-yourself (DIY) projects, which would likely be the overall theme for the second half of the year.
Lowe’s reported better-than-expected results for the three-month period ending August 4, with earnings per share of $4.56 compared to the estimated $4.49, and revenue of $24.96 billion versus the anticipated $24.99 billion. The company’s stock closed at $225.74 on Tuesday, reflecting an increase of nearly 4%.
Net income for the quarter was $2.67 billion, or $4.56 per share, compared to $2.99 billion, or $4.68 per share, in the same period last year. Net sales declined from $27.48 billion a year ago. Lowe’s is experiencing a slowdown in sales this year as the heightened demand resulting from the Covid-19 pandemic diminishes. The company had previously warned Wall Street about this potential slowdown and revised its full-year forecast in May.
Home Depot, Lowe’s main competitor, has also noted a decline in demand. Despite reporting stronger-than-expected quarterly results, Home Depot expects a challenging year ahead. Customers are focusing on smaller projects and purchasing fewer high-value items like appliances, according to Home Depot CFO Richard McPhail.
Both Lowe’s and Home Depot face a complex environment, with rising interest rates and elevated prices for everyday items. However, they also benefit from a robust job market and a shortage of housing in the US. Mortgage rates have reached their highest level in two decades, making homeownership unaffordable for some and discouraging current homeowners from moving. Nonetheless, home prices have continued to rise over the past four months. The combination of these factors should lead to increased investment in home renovations and projects. However, shakier consumer confidence has resulted in softer discretionary sales, as customers wait to see the impact of the macroeconomic environment.
In the second quarter, Lowe’s comparable sales decreased by 1.6%, outperforming the expected decline of 2.6%. The company attributed this to spring projects, online growth, and its focus on attracting home professionals. While only a quarter of Lowe’s sales come from home professionals, they account for approximately half of Home Depot’s sales. The company aims to capitalize on this market by offering products and services that appeal to professionals, such as paint, plumbing tools, and more.
Despite the positive aspects, falling prices are contributing to lower sales for Lowe’s. Lumber prices have significantly dropped, while appliance prices have also decreased to pre-pandemic levels. Appliance brands have reintroduced promotions, funded by suppliers, which are factored into the company’s guidance for the second half of the year. After experiencing higher costs and out-of-stock items, Lowe’s is now confronted with the challenge of navigating decreasing prices.
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