Lowe's sticks by full-year earnings forecast despite weakening sales, as spring projects offer a boost

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Lowe’s reported mixed results for its fiscal second quarter on Tuesday, as consumers tackled springtime projects and helped offset weakening home improvement demand.

The company topped Wall Street’s earnings estimates, but fell slightly short of expected sales.

The home improvement retailer stuck by its full-year forecast. The home improvement retailer stuck to its full-year forecast. The company expects adjusted earnings per share to range between $13.20 and $13.60.

On a call with investors, CEO Marvin Ellison said Lowe’s feels good about the long-term outlook for home improvement because of the older age and low availability housing in the U.S.

But, he added, it will have a tougher time in short term. The company expects to see a decline in discretionary spending in the near term. This is the theme we are focusing on for the second half of this year. “

Here’s how the company did for the three-month period that ended Aug. 4 compared with what analysts expected, according to consensus estimates from Refinitiv:[do-it-yourself]Earnings per share: $4.56 vs. $4.49 expected

Revenue: $24.96 billion vs. $24.99 billion expected

  • The company’s closed at $225.74 on Tuesday, up nearly 4%.
  • Lowe’s net income for the three-month period was $2.67 billion, or $4.56 per share, compared with $2.99 billion, or $4.68 per share in the year-ago period.

Net sales fell from $27.48 billion a year earlier.

Lowe’s sales are slowing this year as unusually high demand fueled by the Covid pandemic fades. Home Depot warned Wall Street in May of the slowdown. Last week, the company reaffirmed expectations for a tougher year ahead, even as it reported stronger-than-expected quarterly results. Home Depot CFO Richard McPhail said customers are tackling smaller projects and buying fewer big-ticket items, such as appliances.

Both retailers face a complex backdrop, as consumers deal with rising interest rates and elevated prices of everyday items — yet the companies also benefit from a strong jobs market and a shortage of housing in the U.S.

Mortgage rates have hit their highest level in more than two decades, making first-time homebuying unaffordable for some and discouraging current homeowners from moving. According to the S&P CoreLogic CaseShiller home price Index, home prices increased for the fourth consecutive month in May despite higher mortgage rates. Ellison, however, said that shakier confidence among consumers is causing a decline in discretionary purchases. They feel good about their equity and know there are some projects that they will have to complete, but they just wait to see what happens in the macro-environment. The comparable sales for the fiscal second quarter fell by 1.6%. That’s still better than the 2.6% decline that analysts expected, according to FactSet.

Lowe’s said it got a lift from spring projects, online growth and momentum with home professionals.Lowe’s has been working to attract more home professionals, which tend to be bigger and more steady spenders. Home professionals only account for a quarter (or less) of Lowe’s total sales, whereas they make up about half the sales at Home Depot. This helps to drive the purchase of paint, plumbing equipment, and other items. Appliances have also been reduced in price. He said that the discounts are funded by suppliers and are incorporated into the company’s guidance for the second part of the year.