Lowe's Faces Continued Pressure Amid High Interest Rates and Sluggish DIY Market

Lowe’s Companies, Inc. (NYSE:LOW) reported disappointing second-quarter results as the challenging economic environment, characterized by high interest rates and inflation, continues to weigh heavily on the home improvement sector. The company’s quarterly sales plunged by 5.6% year-over-year to $23.59 billion, falling short of analysts’ expectations and highlighting the ongoing struggles in the DIY segment.

On the Q2 earnings call, CEO Marvin Ellison acknowledged the difficult operating conditions, stating, “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.” The sentiment underscores the significant impact that macroeconomic factors are having on consumer behavior, particularly in the home improvement space.

Same-Store Sales Decline Amid Pressures on Big-Ticket Projects

Same-store sales, a critical indicator of a retailer’s performance, dropped by 5.1% in the second quarter, a steeper decline than the 4.43% that analysts had predicted. Lowe’s pointed to “continued pressure” on big-ticket do-it-yourself projects such as flooring, kitchen, and bathroom renovations, as consumers increasingly defer costly home improvement initiatives in the face of economic uncertainty.

The company also noted that poor weather conditions negatively impacted seasonal and outdoor sales, exacerbating the overall decline. The Q2 performance was notably worse than that of Lowe’s main rival, Home Depot (NYSE:HD), which reported a 3.3% decline in same-store sales for the same period.

Positive Trends in Pro and Online Businesses

Despite the broader challenges, Lowe’s did find some bright spots in its Pro and Online businesses, which both recorded positive same-store sales growth. The strength in these areas reflects a more resilient demand from professional contractors and a growing shift towards e-commerce in the home improvement sector.

Lowe’s adjusted earnings per share (EPS) came in at $4.10, exceeding the consensus estimate of $3.97. However, this beat on earnings was not enough to offset the concerns raised by the ongoing sales declines, marking the seventh consecutive quarter of shrinking revenues for the company.

Outlook Lowered as Challenges Persist

Given the pressures experienced in the first half of the year, Lowe’s has revised its full-year 2024 outlook downward. The company now anticipates total sales for the year to be between $82.7 billion and $83.2 billion, lower than the previously projected $84 billion to $85 billion. Additionally, same-store sales are expected to decline by 3.5% to 4%, a deeper drop than the 2% to 3% fall forecast earlier.

Jefferies analyst Jonathan Matuszewski remarked that the guidance cut was “widely anticipated” and “appropriate given the choppy macro environment.” With both homeowners and potential buyers holding off on major expenditures in anticipation of potential interest rate cuts from the Federal Reserve, Lowe’s, along with Home Depot, faces significant uncertainty in the near term.

Home Depot Also Struggles Amid Soft Consumer Demand

Lowe’s struggles are mirrored by those of Home Depot, which also reported its seventh consecutive quarter of negative sales growth. U.S. same-store sales for Home Depot fell by 3.6% in Q2, with both foot traffic and average ticket size declining by 1.8% and 1.3%, respectively. Like Lowe’s, Home Depot has adopted a more cautious stance on its full-year sales guidance, projecting a comparable sales decline of 3% to 4%, worse than the previously expected 1% drop.

The soft results from major home improvement suppliers, including Stanley Black & Decker (NYSE:SWK), Floor & Decor (NYSE:FND), and Tractor Supply (NASDAQ:TSCO), further underscore the challenges facing the sector. According to Telsey Advisory Group’s Joe Feldman, these results “solidify” concerns about the ongoing pressures in the home improvement market.