A Lowe's retail store in Carlsbad, Calif., on May 24, 2017.MIKE BLAKE/Reuters
Lowe’s Cos LOW-N on Tuesday projected a bigger drop in annual same-store sales than previously expected, as inflation-hit consumers cut spending on home-improvement projects, hitting the company’s key do-it-yourself (DIY) business segment.
Shares slipped 2 per cent as the company also trimmed its annual earnings target despite easing supply chain costs driving a third-quarter profit beat.
Lowe’s saw a “greater-than-expected pullback in DIY discretionary spending” particularly in categories including appliances, home decor, kitchen and bath where customers even postponed some purchases, CEO Marvin Ellison said.
The company relies on DIY customers to drive 75 per cent of its revenue, making it susceptible to a wobbly economy, especially when consumers hit the brakes on big home remodelling and discretionary projects.
“(Consumers are) spending on what I call activities – services, concerts, restaurants, travel … But I think sustained interest rates, sustained inflation, the resumption of student debt repayment … are all creating a level of cautiousness,” Ellison told Reuters.
Average spending at Lowe’s – particularly on big-ticket items – was under pressure in the quarter, resulting in a 7.4 per cent drop in same-store sales while analysts expected a 5 per cent decline, according to LSEG IBES data.
Meanwhile, larger rival Home Depot’s HD-N bigger customer base of “Pro-customers” like builders and contractors helped the retailer ride out the weakness in DIY spending and beat expectations for quarterly results.
Lowe’s, however, is doubling down on same-day delivery services and offering holiday deals on key products like power tools and appliances to draw more price-conscious shoppers, executives said on an earnings call.
It expects full-year comparable sales to decline 5 per cent, compared with its prior outlook for a 2 per cent to 4 per cent drop.
“There may be an element of conservatism in there, but there also may be an element that (Lowe’s is) just not seeing the discretionary customer come back like (it) originally anticipated,” M Science analyst John Tomlinson said.