Lowe’s (LOW) has a major challenge on its hands. A significant change in consumer behavior is starting to negatively impact the Home Depot rival's profits, and the company predicts that the growing trend isn't going to reverse course anytime soon.
In Lowe’s second-quarter earnings report for 2024, the home improvement company revealed that its comparable sales nosedived by roughly 5% during the quarter, compared to the same time period last year.
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Its operating income, which is how much a company makes after expenses, also shrunk by about 11%, while its net earnings totaled around $2.3 billion, compared to the $2.6 billion it earned during the same quarter in 2023.
In the report, Lowe’s blamed the decline in sales on waning consumer spending on large DIY home improvement projects, and “unfavorable weather” that negatively impacted sales in “seasonal and other outdoor categories.”
It also revealed that for the rest of the year, it expects comparable sales to continue to shrink by 3.5% to 4%.
During a recent earnings call, which discussed the report, Lowe’s CEO Marvin Ellison said that the company’s grim outlook on sales for the rest of the year is the result of it being “prudent and being cautious” about the “macro environment” and shifts in consumer behavior.
“We're all aware that we have an environment of elevated interest rates and inflation,” said Ellison. “And because of that, the DIY customer is just on the sidelines, waiting for some form of an inflection to take place. So we can't call when that's going to happen, but we felt based on what we saw in the second quarter that it was prudent just to take a cautious approach to our guidance for the second half.”
Lowe’s Chief Financial Officer Brandon Sink said during the call that despite decreasing mortgage rates, consumer sentiment “continues to remain weak,” and in order for there to be an improvement in sales, tensions in the housing market would have to be resolved.
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“Mortgage rates (have) obviously come down,” said Sink. “We expect that to continue to come down further as we turn into '25. But we look at consumer sentiment, existing home sales, housing affordability, those are still concerns. We continue to see pressure there. Consumers are still showing a preference for services versus goods, especially in home improvement. An improvement in these macro trends, we should see and drive sustained increase in discretionary projects in DIY traffic.”
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Mortgage rates are coming down slowly but surely gafter the 30-year fixed-rate mortgage almost reached 8% in 2023. Currently, the rate is at 6.5%, and it is expected to continue to come down as inflation cools, according to a recent analysis from Freddie Mac.
While mortgage rates are declining, home sales prices continue to be an issue. In June, existing-home sales shrunk by 5.4% as the median sales price reached $426,900, the “highest price ever recorded,” according to a recent report from the National Association of Realtors.
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The revelation from Lowe’s comes after its top competitor, Home Depot (HD) , also reported a slump in sales and earnings due to extreme weather and a softness in consumer spending in large home improvement projects.
“There's just a lot of noise with political and geopolitical environment, unemployment ticked up, inflation keeps eating away at disposable income,” said Home Depot CEO Ted Decker during an earnings call on Aug. 13. “And I think people just took a pause as we progress through the quarter or more of a pause because of these macro uncertainties.”
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