The slowing demand for home improvements has led both Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW) to reduce their full-year guidance for same-store sales.
Last week, Home Depot reported mixed earnings, surpassing estimates on both the top and bottom lines. The company generated $43.18 billion in revenue for the quarter, slightly exceeding the projected $43.06 billion. Additionally, Home Depot delivered better-than-expected earnings per share (EPS) of $4.60, compared to the anticipated $4.49.
Similarly, Lowe’s reported earnings on Tuesday, with EPS of $4.10, beating estimates of $3.97. However, the company missed revenue expectations, bringing in $23.59 billion versus the projected $23.91 billion.
Moreover, Home Depot has now revised its same-store sales outlook, expecting a decline of 3-4% for the year, compared to the previously anticipated 1% drop. Company management acknowledged that same-store sales are not “on the trajectory” to reach a 4% decline, suggesting that “incremental pressure on consumer demand” would occur. Despite this, total sales are still expected to grow by 2.5-3%, largely due to the company's acquisition of SRS, a materials distributor.
Lowe’s also revised its guidance, now projecting a steeper decline in same-store sales, with an expected drop of 3.5-4%, compared to the prior forecast of 2-3%.
Both Home Depot and Lowe’s attributed the decline in same-store sales growth and the subsequent cuts to their 2024 guidance to a challenging macroeconomic environment. During Lowe’s Q2 earnings call, CEO Marvin Ellison said, "We're all aware that we have an environment of elevated interest rates and inflation, and because of that, the DIY customer is just on the sidelines waiting for some form of an inflection to take place."
On CNBC Tuesday, Oppenheimer Senior Analyst Brian Nagel offered further insights into the weakening of the Lowe’s customer, stating, “The Lowe's consumer feels less confident about their own personal financial situation today than they did one year ago.”
A weak housing market, persistent inflation and consumer uncertainty about the economy are major factors contributing to the slowing demand for home improvements. With 30-year fixed mortgage rates hovering around 6.5%, many consumers are holding off on home improvement projects, likely awaiting rate cuts.
Over the past year, shares of both Home Depot and Lowe’s have underperformed the S&P 500, trailing by around 18%.
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