Lowe’s (LOW) , like many of its main competitors, has suffered shrinking sales amid a startling consumer trend for several financial quarters.
Many consumers across the country have deprioritized spending on large discretionary home improvement projects such as kitchen and bath remodels. This is during a time when home prices in the U.S. remain high and the housing turnover rate remains the lowest it’s been in 30 years.
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To make matters even more challenging, the average 30-year mortgage rate in the U.S. is currently above 6%.
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Despite this trend, in Lowe’s fourth-quarter earnings report for 2024, the retailer revealed that it recently saw a small glimmer of hope. The company’s comparable sales increased by a minor 0.2% year over year during the fourth quarter.
However, during an earnings call on Feb. 26, Lowe’s CEO Marvin Ellison said that the company is not entirely out of the woods.
“Despite these better than expected fourth quarter results, we’re still seeing a cautious consumer leading to continued near term pressure on DIY discretionary spending, particularly in bigger ticket projects,” said Ellison.
Lowe's makes a grim prediction about future sales
According to a recent report from Placer.ai, Lowe’s saw a 2.2% year-over-year decline in store foot traffic during the fourth quarter. For all of 2024, the retailer’s store visits decreased by 3.7% compared to the same period in 2023.
Placer.ai revealed that Lowe’s experienced major traffic boosts during promotional events such as Black Friday, Mother’s Day, and Memorial Day, which suggests that consumers are waiting for sales and discounts to make purchases.
During the earnings call, Lowe’s Chief Financial Officer Brandon Sink warned that the company's comparable sales this year may either be flat or increase up to 1% as it is uncertain when customers will warm back up to tackling large home improvement projects.
“Home prices are near record-highs, and we have the oldest housing stock in U.S. history; but there is still a good deal of near term market uncertainty around the timing of an inflection in the home improvement market, especially for larger ticket discretionary spend,” said Sink. “We also expect mortgage rates to remain elevated, continuing to put pressure on existing home sales and some of the larger projects that are linked to those occasions.”
Lowe's ramps up efforts to attract back frugal customers
Amid this uncertainty, Lowe’s is relying on its new Lowe’s Essentials brand to attract frugal shoppers into its stores. The brand offers products such as clothes hangers, gardening tools and water cans, that are mostly priced below $10.
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In addition, last week, the company also revamped its MyLowe’s Pro Rewards program, which offers exclusive in-store perks and deals to members. The program now tailors offers to target customers and allows them to unlock higher rewards at lower spending levels.
Lowe’s is betting that its improved Rewards program will incentivize repeat purchases and boost foot traffic in stores.
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During the call, Ellison said that Lowe’s is also hoping that customers will adjust to facing higher mortgage rates, which could also increase spending on large discretionary home projects.
“We believe at some point, customers are going to get normalized in this high mortgage rate environment and they’re going to start to tap into that equity, making the decision that they’re going to stay in their existing home but modernize that home, so the moment we start to see that home services business start to tick up positive on a more continuous basis, that’s going to be another positive sign for us,” said Ellison.
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