Lowe’s It reported mixed results for its fiscal second quarter on Tuesday, as consumers tackled spring projects and home improvement demand helped weaken.
The company beat Wall Street’s earnings estimates but fell slightly short of expected sales.
The home improvement retailer stuck to its full-year forecast. It expects total sales to be between $87 billion and $89 billion for the period. It forecasts a 2% to 4% decline in comparable sales this fiscal year. It expects adjusted earnings per share to range between $13.20 and $13.60.
In a call with investors, CEO Marvin Ellison said Lowe’s feels good about the long-term outlook for home improvement because of the aging and low availability of housing in the United States.
But he added that business will have a tougher time in the short term.
“When you look at consumer sentiment, we’ve seen a decline in DIY (do-it-yourself) discretionary spending,” Ellison said. “And that’s the overarching theme of how we see the second half of the year for us.”
Here’s how the company fared compared to analysts’ expectations for the three-month period ended Aug. 4, based on Refinitiv’s consensus estimates:
- Earnings per share: $4.56 vs. $4.49 expected
- Revenue: $24.96 billion, versus $24.99 billion expected
The company’s shares rose more than 3% in midday trading.
Lowe’s net income for the three-month period was $2.67 billion, or $4.56 per share, compared with $2.99 billion, or $4.68 per share, in the year-ago period.
Net sales were down from $27.48 billion a year ago.
Lowe’s sales are slowing this year as unusually high demand spurred by the Covid pandemic eases. Earlier this year, the home improvement retailer alerted Wall Street to the slowdown by cutting its full-year forecast in May.
Rival Home Depot he also warned that the demand will decrease. Last week, the company reported stronger-than-expected quarterly results, but reaffirmed its expectations for a tougher year ahead. Home Depot CFO Richard McPhail said customers are taking on smaller projects and buying fewer big-ticket items like appliances.
Both retailers face a mixed bag as consumers deal with rising interest rates and higher prices for everyday goods — though companies also benefit from a strong U.S. job market and housing shortage.
Mortgage rates have hit their highest levels in more than two decades, putting first-time home buyers out of reach for some and discouraging current homeowners from moving. Home prices rose for the fourth straight month in May despite higher mortgage rates, according to the S&P CoreLogic Case-Shiller home price index.
As more Americans stay put, investment in home renovations and projects needs to increase. But Ellison said faltering consumer confidence led to softer discretionary sales.
“What our customers are telling us is that they feel good about their employment situation,” he said on a call with CNBC. “They have a good sense of the amount of equity they have in their home and they know there are projects they have to do, but they’re kind of waiting to see what happens in the macro environment.”
Comparable sales in the second quarter fell 1.6% in the second fiscal quarter. That’s better than the 2.6% decline analysts were expecting, according to FactSet.
Lowe said he gained momentum from spring projects, online growth and with home pros.
Lowe’s is working to attract more home professionals who are bigger and more stable spenders. Only a quarter of Lowe’s sales come from home professionals, while they account for nearly half of Home Depot’s sales.
In a call with investors, Ellison said those experts are telling Lowe’s that there is still a healthy amount of projects in the pipeline. This includes paint, plumbing tools, etc. helps speed up their purchases.
But after a period of higher costs and out-of-stock products, lower prices are now contributing to lower sales, Ellison said on a call with CNBC. Not only did lumber prices drop significantly, but so did household appliances.
He said appliance brands are returning to pre-pandemic promotional levels. According to him, these discounts financed by suppliers are included in the company’s management for the second half of the year.
Lowe’s shares closed Monday at $217.59, giving the company a market value of $127.5 billion. Lowe’s shares are up more than 9% so far this year. That’s less than the S&P 500’s gain of about 14%.