It's no secret that consumers have been cutting back on home improvement projects, especially the more expensive ones. Therefore, it’s not surprising that Lowe's (LOW, Financial) fell short of Q2 revenue and comparable sales expectations. Like Home Depot (HD, Financial), which reported lackluster Q2 results last week, LOW also lowered its FY25 EPS and comparable sales guidance. This reflects weaker-than-expected DIY sales and macroeconomic pressures, including persistently high interest rates affecting the housing market.
- Ongoing weakness in the DIY business and unfavorably warm spring weather led to a 5.1% decrease in Q2 comps. High interest rates are making big-ticket projects, like kitchen remodels, more expensive and are keeping homeowners in their current homes. This results in subdued demand for maintenance, repair, and remodeling projects typically done before selling a house.
- The Pro business significantly outperformed DIY again, with comps up mid-single-digits. Pro projects tend to be costlier than DIY but are often tied to new home construction, which remains healthy due to a lack of housing supply.
- LOW comfortably surpassed EPS expectations, extending a winning streak of over five years. The company used tight cost controls and share buybacks to offset sluggish sales and deliver another earnings beat. Specifically, SG&A expenses were down by 1.5% year-over-year, and LOW repurchased approximately $1.0 billion worth of shares during the quarter.
- Despite the Q2 EPS beat, LOW cut its FY25 EPS guidance to $11.70-$11.90 from the previous $12.00-$12.30. The company also lowered its FY25 revenue outlook to $82.7-$83.2 billion from $84.0-$85.0 billion, and its comp guidance to -3.5% to -4.0% from -2.0% to -3.0%.
- The market is taking the gloomy outlook in stride, as it was widely anticipated, especially after HD's guidance cut. Investors are already looking forward to the next fiscal year when lower rates are expected to boost the housing market.
The main takeaway is that there were few surprises in LOW's earnings report. Spending on home improvement projects remains slow and is unlikely to change much until interest rates decrease and the housing market improves.
