(Bloomberg) — Lowe’s Cos. lowered its full-year guidance as the frozen housing market keeps consumers on the sidelines for big purchases and renovations, including do-it-yourself projects.
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The retailer now expects comparable sales to fall 3.5{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} to 4{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}, versus the previous forecast of a 2{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} to 3{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} decline. That is worse than the average analyst estimate compiled by Bloomberg. Lowe’s also expects adjusted earnings to come in lighter than it previously forecast.
Uncertainties around interest rates and inflation continue to fuel a challenging backdrop for the home-improvement industry, Chief Executive Officer Marvin R. Ellison said on a call with analysts.
“People aren’t moving nearly as often as they typically do because current mortgage rates are so much higher than their existing rate,” he said. Consumers – especially more affluent ones – have preferred spending on services for longer than anticipated, Ellison added.
Demand for big-ticket home projects like flooring and kitchen remains soft, executives said on the call. Professional customers have remained resilient, boosting sales in building materials, appliances and other areas. Online sales grew for the quarter, and the retailer has been adding more delivery services to broaden its reach in suburban and urban markets.
The retailer’s shares were little changed in New York trading at 10:30 a.m. They have risen 9.3{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year to date as of Monday’s close, compared to an 18{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} gain for the S&P 500 Index.
Lowe’s results could add more fuel for the Federal Reserve to embark on highly-anticipated interest rates cuts, wrote Peter S. Benedict, an analyst at Baird. Still, company executives cautioned that it’s difficult to know what interest rate level will unlock consumer demand or when.
Americans have pulled back on discretionary spending amid high interest rates and inflation. They are holding off on making large purchases or taking on construction projects that need financing, prioritizing food and other essentials. When they are shopping, consumers are being selective and seeking value.
That’s translated into mixed results for retailers, favoring companies that sell necessities. Walmart Inc. raised its guidance as shoppers prioritize items like groceries, and the company said it’s not seeing any fraying of consumers’ financial health. Target Corp. reports quarterly results Wednesday.
Within the home-improvement arena, Lowe’s and other operators have been navigating through a slowdown following the pandemic when consumers rushed to upgrade houses. Existing home sales remain muted, and consumers are focusing on smaller projects such as gardens.
Lowe’s, which runs more than 1,700 stores, said comparable sales declined 5.1{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} during the latest quarter through early August. That is lower than what Wall Street analysts were estimating. Adjusted earnings came in at $4.10, higher than analysts’ forecast.
Rival Home Depot Inc. cut its full-year guidance last week, citing a “deferral mindset” as consumers wait for interest rates to decline. Floor & Decor Holdings Inc. reduced the number of store openings for the year, as well as its sales and earnings forecast. The retailer said in August that a reduction in interest rates is necessary to improve demand.
(Adds commentary from analyst call.)
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