The news: Lowe’s lowered its full-year outlook following a disappointing Q2 performance, as the frozen housing market weighs on demand for home improvement and other housing-adjacent categories like furniture and appliances.
- Total sales fell 5.5% year over year (YoY) to $23.59 billion, short of FactSet’s estimate for $23.93 billion.
- Comparable sales declined 5.1% YoY, exceeding the consensus estimate for a 4.4% drop.
- Profits beat expectations at $4.10 per share, compared with LSEG’s expected $3.97—although net income fell nearly 11% YoY.
Lowe’s now expects FY comparable sales to decline by 3.5% to 4%—more than its prior forecast of a 2% to 3% drop—and total sales between $82.7 billion and $83.2 billion, down from $84 billion to $85 billion.
The backdrop: Like Home Depot, Lowe’s CEO Marvin Ellison blamed elevated interest rates for the slump in home improvement sales, as households wait for the Federal Reserve to cut rates before purchasing a new home or embarking on projects.
- The majority of Lowe’s customers have fixed 30-year mortgage rates below 4%, while the average rate as of this writing stood at 6.94%—creating a “golden handcuffs” scenario where households opt to stay in place rather than risk higher monthly payments.
- Sales of existing homes were down 2% YoY in July—the lowest July level since 2012—while pending sales fell 2.9% month over month and 5.8% YoY to their lowest point on record (with the exception of April 2020, when the pandemic put housing market activity on pause), per Redfin.
- The prospect of lower rates soon is pushing consumers to adopt what Home Depot CFO Richard McPhail called a “deferral mindset” for big-ticket purchases and renovations, further weakening demand.
Both Home Depot and Lowe’s also cited extreme weather as a drag on sales in the quarter, particularly in seasonal and other outdoor categories.
The outlook: While economists are optimistic that the Fed will begin lowering rates in September, it may take some time for the housing market to bounce back.
- Bank of America economists expect the housing market to stay stuck until at least 2026 thanks to a supply shortage that is causing home prices to skyrocket—putting ownership out of reach for a growing number of consumers.
- The median housing payment for US homebuyers is hovering near a record high of $2,588 as of the four weeks ended August 11, per Redfin; an April analysis by Bankrate found that Americans need an annual income north of $110,000 to be able to afford a median-priced home.
- The housing industry’s momentum will also depend on the scale of the Fed’s rate cuts: Markets are currently predicting a quarter-percentage-point cut in September, which may not be enough to convince prospective homebuyers to put in a mortgage application.
Given the uncertainty homeowners and prospective buyers are feeling, it’s no surprise that Lowe’s and Home Depot are focusing their attentions on the Pro market, where demand remains relatively healthy.