Home improvement retailer Lowe’s has lowered its full-year guidance as sales continued to fall in the second quarter amid a challenging macroeconomic environment.
The company’s net sales for the three months ended August 2 were $23.6 billion, down 5.5 per cent year-on-year and extending the 4.4 per cent drop in the first quarter. The decline also came off the back of a 9.2 per cent dip in the prior year.
Second-quarter comparable sales fell 5.1 per cent, attributed to continued pressure in DIY bigger ticket discretionary spending and unfavorable weather impacting sales in seasonal and outdoor categories.
Almost all the gains made by the chain during the pandemic have been unwound with revenue for the second quarter period just 12.4 per cent above where it was in 2019, said GlobalData MD Neil Saunders.
“This isn’t a terrible performance, but when the accumulated rate of inflation over the period is considered, neither is it a particularly compelling growth story,” he added.
On the bottom line, net income declined 10.8 per cent. Excluding the pre-tax gain from the sale of the Canadian business, net income was down by a sharper 12.5 per cent.
Given the poor revenue, the company has lowered its full-year outlook, expecting comparable sales to fall 3.5 to 4 per cent instead of 2 to 3 per cent as previously reported. Operating income forecast has also deteriorated.
According to Saunders, the housing market, which is a driver of DIY, is still in decline with the number of movers down 5.7 per cent over the quarter.
“Much of this is linked to high interest rates and while there is a projection that these will come down over the remainder of this year, there is a growing sense that it will be too little, too late to save the home improvement market,” he elaborated.
Compared to Home Depot, another prominent player in the market, Lowe’s numbers are much worse as the company is more exposed and vulnerable in the current situation, the analyst continued. Home Depot’s comparable sales were down by a shallower 3.6 per cent, and the retailer has done a better job of holding onto its pandemic gains.
While Lowe’s is not doing anything inherently wrong, it could be more aggressive on the softer and decorative side of the market to make up for shortfalls in other categories, he assessed.
Overall, Saunders still believes Lowe’s is a solid business and that the chain will be able to get back into growth as the market and consumer pick up.
