Following a decline in consumer spending on do-it-yourself projects that resulted in a nearly 13% year-over-year decline in sales during its fiscal third quarter, Lowe’s lowered its sales projection for the entire year on Tuesday.
On Tuesday, the company’s shares dropped by roughly 3%.
According to the home improvement retailer, its current projection for sales for the fiscal year is approximately $86 billion. It had previously projected an amount between $87 and $89 billion. Comparable sales are expected to decline by roughly 5% this fiscal year, which is worse than the 2% to 4% decline that was previously predicted. Adjusted earnings per share, which the company had previously estimated to be between $13.20 and $13.60, will likely be about $13.
CEO Marvin Ellison said during a conference call with investors that Lowe’s had observed a “greater-than-expected pullback” by consumers on large-scale purchases and discretionary projects.
He stated, “This quarter, we saw some of these consumers increasingly prioritizing experiences over goods spending on travel and entertainment, even though we’ve seen a more cautious consumer for some time.”
However, he claimed that the company’s sales to home professionals, who now generate a larger portion of its income, increased during the quarter. About 25% of its business is driven by those advantages. He stated that during the holiday season, the company, which sells Christmas trees and decorations, will concentrate on providing value and sparing customers’ time.
As of Nov. 3, Lowe’s fiscal third quarter results are as follows:
- Earnings per share: $3.06, based on consensus estimates from LSEG (formerly Refinitiv), it was unclear at first whether this was comparable to the $3.03 analysts had predicted.
- Income: $20.47 billion versus the anticipated $20.89 billion
Like its bigger competitor Home Depot, Lowe’s is seeing a decline in demand as Americans’ enormous, Covid-fueled appetite for home renovations wanes and rising mortgage rates add to the unpredictability of the housing market.
During an August earnings call, Ellison issued a warning, stating that “the overall theme of how we see the second half of the year” would be a reduction in DIY project spending. However, he emphasized that due to a shortage of available housing and an older average age of homes nationwide, the home improvement market had promising long-term prospects.
Lowe’s net income for the third quarter of its fiscal year was $1.77 billion, or $3.06 per share, as opposed to $154 million, or 25 cents per share, during the same period last year. Due to the company’s sale of its Canadian operations, there was a $2.1 billion impairment charge during that quarter.
Net sales decreased from $23.48 billion in the previous year.
According to Ellison, during a Tuesday earnings call with investors, consumers are delaying or cutting back on their appliance purchases if they can. He mentioned that some consumers are, for instance, purchasing only a refrigerator as opposed to a whole new set of kitchen appliances.
Given that it is the largest appliance seller in the United States and gets 14% of its sales from the category, Lowe’s is aware of this setback, he added.
Due to pressure on discretionary spending, online sales fell 4% during the quarter.
According to Ellison, the business is increasing its marketing and merchandising efforts to highlight value to customers who are price conscious. According to him, the company’s outlet stores, which offer heavily discounted large, bulky items like appliances with dents or scratches on them, have also received positive feedback from customers. In the third quarter, it opened its fifteenth outlet.
Despite seeing a 3% decline in sales year over year, Home Depot, a rival of Lowe’s, exceeded Wall Street’s fiscal third-quarter earnings and revenue expectations last week. Customers are still remodeling their homes, according to Home Depot, but over the last few quarters, more of them have been taking on smaller, less expensive projects.
According to Richard McPhail, chief financial officer of Home Depot, “the worst of the inflationary environment is behind us.”
As of Tuesday’s close, Lowe’s shares had decreased by roughly 1% so far this year, trailing the S&P 500’s gains of roughly 18%. With the company’s stock closing at $198.06 on Tuesday, Lowe’s market value increased to $114.3 billion.
