Lowe’s forecasts 2023 sales below market expectations due to sagging demand

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Lowe’s Cos Inc LOW-N forecast full-year sales below market expectations on Wednesday, hammered by weak demand for home improvement products as customers save up cash for higher-priced everyday essentials.

Shares dropped nearly 3 per cent in early trading as the company posted a bigger-than-expected drop in quarterly same-store sales due to a decline in customer transactions.

A pandemic-fueled boom in demand for products such as kitchen equipment and gardening tools is now fading as household budgets shrink, while Americans redirect their attention back to activities such as travelling.

Larger rival Home Depot Inc HD-N had also last week warned of a moderation in demand this year, while struggling with elevated costs and wage raises amid a tight U.S. labour market.

Lowe’s said it has awarded $220-million in bonuses to its employees in the fourth quarter, adding that workers would receive an incremental $7,500 bonus on top of their annual incentive bonuses.

It is also planning to invest $350-million more in wages for its front line associates this year.

“With Home Depot helping lay the groundwork a week ago, really nothing too surprising here,” Telsey Advisory Group analyst Joe Feldman said, adding the results were in line with expectations.

Lowe’s, which has been trying to catch up with Home Depot, has more room to improve its margins this year, Feldman said. The company is expecting operating margin of 13.6 per cent to 13.8 per cent in 2023.

It projected full-year total sales of $88-billion to $90-billion, while analysts estimated annual revenue of $90.48-billion, according to Refinitiv data.

Lowe’s also forecast 2023 earnings in the range of $13.60 to $14.00 per share, the midpoint of which was slightly ahead of an estimate of $13.79.

Lowe’s reported a 1.5 per cent decline in comparable sales for the three months ended Feb. 3, worse than expectations of a 0.01 per cent drop.