Lowe’s is feeling the pinch as inflation and sky-high interest rates put a damper on the home improvement boom.
The retail giant slashed its full-year forecast on Tuesday, citing a drop in quarterly sales and a gloomy outlook for the rest of the year.
The company now expects total sales between $82.7 billion and $83.2 billion for the year—down from its previous estimate of $84 billion to $85 billion. Same-store sales are expected to fall by 3.5 percent to 4 percent, worse than the earlier forecast of a 2 percent to 3 percent drop.
Earnings per share? The forecast here was also cut, down to $11.70 to $11.90 from the previous $12 to $12.30.
Lowe’s CEO Marvin Ellison isn’t sugarcoating the situation. In an interview with CNBC, Loew’s chief Marvin Ellison said that consumers are holding back, waiting for the Federal Reserve to cut interest rates.
“Inflation remains high,” Ellison said. “And big-ticket purchases are being delayed as customers sit back and wait for interest rates to fall.”
But don’t hold your breath. While Fed Chair Jerome Powell has hinted at a possible rate cut as soon as September, Ellison isn’t betting the farm on a quick turnaround for the home improvement market. With about 90 percent of Lowe’s customers being homeowners, many of whom locked in mortgage rates under 4 percent, it’s no wonder they’re reluctant to dive into new loans or major renovations at today’s higher rates.
Despite these headwinds, Lowe’s still managed to post adjusted earnings of $4.10 per share, beating Wall Street’s expectations of $3.97. Revenue, however, fell short at $23.59 billion, missing the mark set at $23.91 billion. The company’s net income for the fiscal second quarter plummeted to $2.38 billion, or $4.17 per share, compared to $2.67 billion, or $4.56 per share, a year earlier.
Lowe’s took a $43 million pretax gain from selling off its Canadian retail business last year, which padded its earnings this quarter by 7 cents per share. But even with that boost, net sales dropped from $24.96 billion a year ago, marking the sixth straight quarter of sales declines.
Comparable sales, which strip out the noise from store openings and closures, sank by 5.1 percent. The culprit? Fewer discretionary home projects and crummy weather that dampened sales of outdoor gear and seasonal items.
