Consumer Spending Cutback Hits Lowe’s
Lowe’s Cos, the home improvement retailer, has revised its annual same-store sales forecast, projecting a larger drop than previously anticipated. As consumers affected by inflation reduce their spending on home-improvement projects, the company’s key do-it-yourself (DIY) business segment has been impacted. This has led to a decline in revenue due to a greater-than-expected pullback in discretionary spending, especially in larger ticket categories, as stated by CEO Marvin Ellison during the third quarter. Shares of Lowe’s dropped approximately 4% in premarket trading as a result of the demand slump. The company has also adjusted its annual earnings target downwards, despite reporting a third-quarter profit beat due to cost reductions in the supply chain.
Unease in the Economy
Lowe’s reliance on DIY customers as a revenue driver makes the company more vulnerable to an uncertain economy. As the economy becomes less stable, consumers are becoming cautious about taking on significant home remodeling and discretionary projects. In contrast, Lowe’s competitor, Home Depot, benefits from a larger customer base consisting of builders and contractors. This advantage has allowed Home Depot to withstand the decline in DIY spending and surpass expectations for quarterly revenue and profit.
According to LSEG IBES data, Lowe’s experienced a 7.4% decline in same-store sales for the three-month period ending on November 3rd. This drop exceeded analysts’ average estimate of a 5% decrease.M Science analyst John Tomlinson suggests that while Lowe’s lowered its guidance, there may be a combination of caution and a lack of recovery in discretionary spending from the anticipated customer base.
Lowe’s now expects full-year comparable sales to decline by 5%, contrasting with its previous outlook of a 2% to 4% drop. The average analyst expectations foresee a 3.4% decrease in sales.
Additionally, the company has adjusted its full-year per-share profit projection to $13, down from the previously estimated range of $13.20 to $13.60.