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Lowe's Projects Bigger Sales Slump, Trims Earnings Forecast as Consumers Cut Back on Home Improvement Projects

Lowe's projects bigger drop in annual same-store sales due to consumer spending cutbacks
Shares fall 4% as Lowe's trims annual earnings target on weak demand
2023/11/21 (Nov 21st, 2023 3:57 pm)
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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.

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New Projections

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.

Expert Analysis
Lowe's on the Brink of Bearish Fall: Unveiling Hidden Gems Amidst Sales Slump
James Anderson

Lowe's Faces Bearish Impact as Sales Slump and Guidance is Revised Downward

Lowe's Cos, the home improvement retailer, is experiencing a bearish impact as it faces a larger than expected drop in sales. The company's annual same-store sales forecast has been revised downwards, projecting a decline of 5%, compared to the previous outlook of 2% to 4%. This downward revision is driven by consumers affected by inflation cutting back on home improvement projects, resulting in a decline in revenue. Lowe's key do-it-yourself (DIY) business segment is particularly impacted by the greater-than-expected pullback in discretionary spending, especially in larger ticket categories.


Disadvantages in Uncertain Economic Conditions

Lowe's reliance on DIY customers as its revenue driver makes the company more vulnerable to uncertainty in the economy. As the economy becomes less stable, consumers are cautious about taking on significant home remodeling and discretionary projects, further dampening sales. In contrast, Lowe's competitor, Home Depot, benefits from a larger customer base consisting of builders and contractors, giving it an advantage in times of reduced DIY spending.


Considering the decline in same-store sales and the revised guidance, it is clear that Lowe's is facing a bearish impact. This negative sentiment is reflected in the premarket trading where Lowe's shares dropped by approximately 4%, indicating market concerns about the demand slump.


Forecasted Earnings Downwards

In addition to the decline in sales, Lowe's has also adjusted its full-year per-share profit projection downwards to $13, from the previously estimated range of $13.20 to $13.60. This downward revision in earnings further contributes to the bearish outlook for Lowe's.


Analyst Insights

The decline in same-store sales for Lowe's has exceeded analysts' average estimate, indicating a significant challenge for the company. According to M Science analyst John Tomlinson, there may be a combination of caution and a lack of recovery in discretionary spending from the anticipated customer base, implying a potentially prolonged bearish impact for Lowe's.


Conclusion: Bearish Outlook for Lowe's

The combination of a larger sales slump, downwardly revised guidance, and lowered earnings projections paint a bearish outlook for Lowe's. The company's reliance on DIY customers and the impact of reduced discretionary spending have been major factors in this decline, while competitor Home Depot has been better positioned with its customer base of builders and contractors. Investors and traders should carefully assess the implications of these developments before making investment decisions regarding Lowe's stock.

How has Lowe's revised its annual same-store sales forecast?
Lowe's has revised its annual same-store sales forecast to project a larger drop than previously anticipated.
Why has Lowe's seen a decline in revenue?
Lowe's has seen a decline in revenue due to a greater-than-expected pullback in discretionary spending, especially in larger ticket categories, as consumers affected by inflation reduce their spending on home-improvement projects.
What impact has the decline in DIY spending had on Lowe's?
The decline in DIY spending has impacted Lowe's as its key DIY business segment has been affected, leading to a decline in revenue.
How has Home Depot performed compared to Lowe's?
Home Depot has outperformed Lowe's as it benefits from a larger customer base consisting of builders and contractors, which has helped it withstand the decline in DIY spending and surpass expectations for quarterly revenue and profit.
What are the updated projections for Lowe's?
Lowe's now expects full-year comparable sales to decline by 5% and has adjusted its full-year per-share profit projection to $13, down from the previously estimated range of $13.20 to $13.60.

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