Lowe’s cuts full-year outlook as it expects weaker home improvement sales

Lowe’s on Tuesday cut its full-year forecast, as the retailer’s quarterly sales declined and it projected weak home improvement spending in the second half of the year.

The company said it now projects total sales of between $82.7 billion and $83.2 billion for the full year, compared with the $84 billion to $85 billion that it previously expected. It said it expects comparable sales to fall by 3.5% to 4%, compared with its prior forecast of a decline of 2% to 3%. It anticipates adjusted earnings per share will be about $11.70 to $11.90, compared with the prior outlook of between $12 and $12.30.

In an interview with CNBC, CEO Marvin Ellison said consumers are waiting for the Federal Reserve to cut interest rates. He added shoppers also under pressure from the economic backdrop.

“Inflation remains high,” he said. “And big-ticket purchases are being delayed as customers sit back and wait for interest rates to fall.”

Fed Chair Jerome Powell has signaled a rate cut could come as soon as September, but Ellison said it’s difficult to predict how soon home improvement activity would gain momentum again after that.

About 90% of Lowe’s customers are homeowners and most have a fixed 30-year mortgage rate of less than 4%, he said. That explains customers’ hesitance to get a new mortgage or take out a loan for a major home project with higher interest rate, he added.

He said Lowe’s has not seen “a dramatic shift one way or another in overall consumer sentiment,” but is waiting for housing turnover to go up.

Here’s what the company reported for the fiscal second quarter compared with what Wall Street was expecting, based on a survey of analysts by LSEG:

• Earnings per share: $4.10 adjusted vs. $3.97 expected
• Revenue: $23.59 billion vs. $23.91 billion expected

In the three-month period that ended Aug. 2, Lowe’s net income fell to $2.38 billion, or $4.17 per share, compared with $2.67 billion, or $4.56 per share, in the year-ago period.

Lowe’s got a $43 million pretax gain from the sale of its Canadian retail business in 2022, which lifted its earnings in the second quarter. That boosted the company’s earnings per share in the period by 7 cents. Excluding the gain, the company earned $4.10 per share.

Net sales dropped from $24.96 billion in the prior year. Lowe’s posted a year-over-year sales decline for the sixth straight quarter.

Comparable sales, an industry metric that takes out one-time factors like store openings and closures, dropped 5.1%, as the company said customers took on fewer discretionary home projects and unfavorable weather hurt sales of outdoor and seasonal items.

Those declines were partially offset by growth in Lowe’s online business and sales to home professionals, such as contractors and electricians. For pros, comparable sales rose by mid-single digits and online sales increased by 2.9%, Ellison said.

About 25% of Lowe’s sales come from pros compared with about half of Home Depot’s sales. Over the past five years, Lowe’s has been trying to attract more home professionals, which tend to be steadier and more lucrative customers, by tailoring its merchandising assortment, delivering orders to job sites and offering a loyalty program.

Ellison said that effort has paid off, with pros now “the strongest segment of our overall business.”

Lowe’s shared its quarterly results and outlook at a time when investors and economists are watching consumer spending particularly closely. Recent economic data and corporate earnings have given mixed indications about American households’ financial health, as the Federal Reserve weighs a much-awaited rate cut.

Jobs growth in July came in much lower than expected. Yet on the other hand, Walmart‘s CFO, John David Rainey, told CNBC that the largest U.S. retailer does not “see any additional fraying of consumer health.” Goldman Sachs also cut the odds of a recession to 20%.