Lowe’s sees steeper drop in annual sales as DIY demand stumbles

12:22 pm Tuesday, November 21st, 2023

By Deborah Mary Sophia

(Reuters) -Lowe’s Cos 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% 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% of its revenue, making it susceptible to a wobbly economy, especially when consumers hit the brakes on big home remodeling 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% drop in same-store sales while analysts expected a 5% decline, according to LSEG IBES data.

Meanwhile, larger rival Home Depot’s 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%, compared with its prior outlook for a 2% to 4% 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.

(Reporting by Deborah Sophia in Bengaluru; Editing by Anil D’Silva)