A significant change in consumer behavior is starting to negatively impact the Home Depot rival’s profits, and the company predicts that the growing trend isn’t going to reverse course anytime soon.
In Lowe’s second-quarter earnings report for 2024, the home improvement company revealed that its comparable sales nosedived by roughly 5% during the quarter, compared to the same time period last year.
“We’re all aware that we have an environment of elevated interest rates and inflation,” said Ellison.
“And because of that, the DIY customer is just on the sidelines, waiting for some form of an inflection to take place.
“Mortgage rates (have) obviously come down,” said Sink.
But we look at consumer sentiment, existing home sales, housing affordability, those are still concerns.
While mortgage rates are declining, home sales prices continue to be an issue.
In June, existing-home sales shrunk by 5.4% as the median sales price reached $426,900, the “highest price ever recorded,” according to a recent report from the National Association of Realtors.
Lowe’s (LOW) is facing a formidable obstacle. The Home Depot competitor’s earnings are beginning to suffer from a notable shift in customer behavior, and the business believes that this upward trend won’t be stopping anytime soon.
The home improvement company Lowe’s disclosed in its second-quarter earnings report for 2024 that its comparable sales fell by approximately 5 percent in the quarter when compared to the same period previous year.
Its net earnings came to about $2.3 billion, down from $2.6 billion during the same quarter in 2023, while its operating income—the amount of money a business makes after expenses—also decreased by roughly 11%.
Lowe’s attributed the sales drop in the report to “unfavorable weather” that hurt sales in “seasonal and other outdoor categories” as well as declining consumer spending on significant do-it-yourself home improvement projects. “.
Furthermore disclosed was the expectation that comparable sales will decline by 3.5 to 4 percent for the remainder of the year.
Lowe’s CEO Marvin Ellison stated that the company’s pessimistic sales forecast for the remainder of the year is due to its “prudent and cautious” approach to the “macro environment” and changes in consumer behavior during a recent earnings call that covered the report.
“Everyone knows that we live in a time of high inflation and interest rates,” Ellison remarked. As a result, the do-it-yourself consumer is idly waiting for an inflection to occur. Although we are unable to predict when that will occur, we believed that it would be wise to simply adjust our second-half guidance downward in light of the second quarter’s performance. “.
Although mortgage rates are falling, consumer sentiment “continues to remain weak,” according to Lowe’s Chief Financial Officer Brandon Sink, who also stated during the call that tensions in the housing market must be resolved before sales can improve.
Sink stated, “It is evident that mortgage rates have decreased.”. “We anticipate that as we approach ’25, it will continue to decline. Still, there are issues with consumer sentiment, current home sales, and housing affordability. There’s still pressure there. Particularly in home improvement, consumers continue to express a preference for services over goods. If these macrotrends improve, we ought to observe and encourage a steady rise in discretionary DIY project traffic. “.
U. s. Concerns about the economy are hurting businesses.
Mortgage rates are gradually decreasing after nearly hitting 8% for 30-year fixed-rate mortgages in 2023. The rate is currently at 6.5 percent, and a recent Freddie Mac analysis indicates that it will likely continue to decline as inflation declines.
Although mortgage rates are going down, there is still a problem with home sales prices. As per the latest report by the National Association of Realtors, the median sales price of $426,900 was the “highest price ever recorded” in June, which resulted in a 5 point 4 percent decline in existing-home sales.
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The disclosure from Lowe’s coincides with the news that Home Depot (HD), the company’s main rival, has also revealed a decline in sales and earnings as a result of severe weather and a slowdown in consumer spending on major home renovation projects.
