A Lowe's retail store in Carlsbad, Calif., on May 24, 2017.MIKE BLAKE/Reuters
Lowe’s LOW-N cut its annual profit and sales forecasts on Tuesday, echoing bigger rival Home Depot’s concerns of a slim chance of a recovery in home improvement demand this year.
The U.S. Federal Reserve was expected to cut interest rates earlier this year, but insufficient proof of easing inflation thus far has kept the rates high, which is affecting home sales, and consequently demand for expensive renovation projects.
“We’re seeing significant implications … people aren’t moving nearly as often as they typically do because current mortgage rates are so much higher,” said CEO Marvin Ellison on a post-earnings call.
Lowe’s expects a 3.5 per cent to 4 per cent drop in comparable sales for the full year and adjusted earnings per share of about $11.70 to $11.90, down from about $12.00 to $12.30 it previously forecast.
Last week, Home Depot HD-N also forecast a decline in annual profit and a bigger drop in annual comparable sales.
Unusually warm weather also dented sales for the home improvement companies during the typically strong spring season, as consumers put off expensive lawn and garden projects.
Tepid demand for do-it-yourself (DIY) projects, which account for more than half of Lowe’s sales, led to a 5.1 per cent drop in second-quarter comparable sales – wider than analysts’ expectation of a 4.11 per cent fall, per LSEG data.
Lowe’s shares were down marginally in choppy trading.
The company, however, beat analysts’ estimates of adjusted earnings per share, helped by cost control measures and gains in its Pro business.
Both Home Depot and Lowe’s have tried to engage more professional contractors and property managers, as demand from individual customers for plumbing, kitchen cabinets and roofing works remains weak.
“Lowe’s has been managing gross margin and controlling costs a little bit better than anticipated,” said Telsey Advisory Group analyst Joseph Feldman, but lower sales in the second-half of the year could make that more difficult.