New York – Americans have become do-it-yourselfers during the pandemic, decorating their apartments, houses and condos while stuck inside and tired of seeing the same dreary interiors every day.
But the Covid emergency is behind us, prices are (much) higher, consumers fear an accelerating recession, and people are spending less at Lowe’s and Home Depot.
Lowe’s on Tuesday slashed its profit and sales forecast for the year, saying consumers are spending less on home improvements. This comes after rival Home Depot posted disappointing sales and dire forecasts last week.
“We are updating our full-year forecast to reflect softer than expected consumer demand for discretionary purchases,” Ellison said. “We remain optimistic about the medium and long-term prospects for the home improvement business.”
Home Depot hits the brakes: Three-year streak of strong sales ends amid home improvement pullback
Shares of Lowe’s rose 2% on Tuesday.
Ellison said this optimism also hinges on finding a differentiated customer base, where the Rural store “gives us the opportunity to drive sustainable earnings growth because of the lower expense base.”
home improvement depression
The end of a long and robust investment by homeowners in home improvement projects during the pandemic forced Lowe’s and rival Home Depot to look for ways to offset slowing business.
“Lowe’s is getting a case of the home improvement slump,” retail expert Neil Saunders, managing director of Global Data, said in a note Tuesday.
On the consumer side, the downturn in the real estate market is reducing the number of people engaged in home improvement projects, Saunders said.
“It hasn’t helped Lowe’s, though arguably the burden falls more heavily on Home Depot as movers undertaking heavier and more serious remodeling projects, which traditionally favor Lowe’s biggest competitor,” he said.
Bill Darcy, CEO of the National Kitchen and Bath Association, said homeowners are nervous about the economy. Some have put large-scale projects on hold, while others are shifting to smaller, lower-cost projects, he said.
US annual inflation eased slightly in April
Among the trends he’s seen: Consumers are now preferring lower prices than big-name brands, turning to factory-built cabinets over custom millwork, and buying less expensive countertops.
According to Darcy, the completion of the project is beginning to falter. “On a year-on-year basis annual project completions are at 1.8% in Q1 2023, slowing from 6.5% in Q4 2022. Consumers are largely holding off on projects until economic conditions stabilise,” he said.
Sales slump
Reported sales at Lowe’s at stores open at least one year fell 4.3% in the latest quarter. Ellison said lumber prices have declined because supply and demand have finally balanced again after years of tight supply chains. The CEO also blamed the inclement weather, as rainy days in the West weren’t the most favorable conditions for building sheds or installing new soffits.
But discretionary purchases from retailers across the country count for the same thing: Consumers no longer spend on things they don’t need. Target, Walmart and Home Depot have all indicated over the past two weeks that discretionary purchases have declined across the board. People are spending more on groceries and other essentials and less on clothing and gutters.
US consumers are more cautious when making their purchases
Consumers haven’t completely given up yet: Travel spending continues to be high. But it looks like inflation has finally caught up with the United States. The Labor Department reported earlier this month that prices are now 4.9% higher than a year ago.
Lowe’s total sales fell 5.5% to $22.3 billion in the first quarter. Profit fell 3% to $2.3 billion.
The company expects annual sales this year to be between $87 billion and $89 billion, compared to a previous estimate of between $88 billion and $90 billion.
In stores open for at least a year, Lowe’s now predicts that sales will decline by up to 4%. Sales were previously expected to be flat or down 2%. In addition, Lowe’s cut its earnings forecast by 3% from its initial forecast.
Low cost market
Lowe’s needed a new, more reliable engine of growth amid slowing sales at its vast fleet of urban retailers, and it appears to have found it: rural America.
Lowe’s CEO Marvin Ellison said, “Whereas in the past our penetration into rural and remote stores was viewed as a competitive disadvantage, we now expect these stores to drive our operating profit growth over the next 3-5 years.” will be a major component of , during the company’s earnings call with analysts this Tuesday.
Bed Bath & Beyond, Toys R Us and RadioShack closed for this reason
The home improvement retailer also announced that it will expand its country store format to an additional 300 stores by the end of the year. The rural stores will focus on “a comprehensive offering of farm, ranch and outdoor products that are convenient for Lowe’s rural customers as a one-stop business to get what they need in one shopping trip.”
Lowe’s said its rural store will meet the specific indoor and outdoor needs of rural homeowners with product categories such as pets, livestock, trailers, fencing, utility vehicles, clothing and specialty hardware.
The company is eager to move more aggressively into smaller rural communities as its sales in larger metropolitan markets have slowed following the pandemic.
Lowe’s has found success with pilot projects it implemented a year ago to test stores tailored to rural shoppers.
Ellison said, “When we look at the pilot stores where we’ve been very diligent in going after those specific categories of apparel, farm and farm goods as part of our expansion opportunity, we’ve really increased our sales per square foot.” Have seen an improvement in sales.” ,
“We see it as a unique opportunity with a lower expense base. If you can have a lower expense base, you can improve sales per square foot,” he said.
Ellison said it could also make sense for Lowe’s to introduce specific products given its higher levels of sales among rural shoppers than in its non-rural stores.
“We’re looking at products like utility vehicles without any consideration if customers will respond, and it’s been an incredible growth category for us,” Ellison said. “We found categories in these rural stores that we think will be relevant in non-rural locations.”
