Lowe’s sees steeper drop in annual sales as DIY demand stumbles
Lowe’s lowered its full-year sales outlook, after customers spent less on do-it-yourself projects and caused its fiscal third-quarter sales to tumble nearly 13% year over year. The home improvement retailer said it now anticipates sales will total about $86 billion for the fiscal year. It had previously expected a range of $87 billion to $89 billion. It projects comparable sales will drop by about 5% this fiscal year, worse than a previously anticipated a decline of between 2% and 4%. The company expects adjusted earnings per share to be about $13, lower than its previously expected range of $13.20 to $13.60.
On a call with investors, CEO Marvin Ellison said Lowe’s felt a “greater-than-expected pullback” by customers on discretionary projects and big-ticket purchases. “While we’ve seen a more cautious consumer for some time now, this quarter we saw some of these consumers increasingly prioritizing experiences over goods spending on travel and entertainment,” he said.
Yet he said its sales to home professionals, which are accounting for a growing share of its revenue, rose in the quarter. Those pros drive about 25% of its business. He said the company, which sells Christmas trees and decorations, will focus on offering value and saving customers’ time during the holiday season.
Here’s how Lowe’s did for the fiscal third quarter ended Nov. 3:
- Earnings per share: $3.06, it was not immediately clear if it was comparable to the $3.03 analysts expected, according to consensus estimates from LSEG, formerly known as Refinitiv
- Revenue: $20.47 billion vs. $20.89 billion expected
Lowe’s, like its larger rival Home Depot, faces cooling demand as Americans’ huge, Covid pandemic-fueled appetite for home improvement moderates and higher mortgage rates inject more uncertainty into the housing market. Ellison warned on an earnings call in August that a pullback in spending on DIY projects would be “the overall theme of how we see the second half of the year.” But he stressed that long term, the home improvement market had bright prospects because of limited housing stock and older average age of homes across the U.S.
In the fiscal third quarter, Lowe’s net income was $1.77 billion, or $3.06 per share, compared with $154 million, or 25 cents per share in the year-ago period. That quarter included a $2.1 billion impairment charge as the company sold its Canadian business. Net sales fell from $23.48 billion in 2022.
Customers are postponing or scaling back appliance purchases if they can, Ellison said on an earnings call with investors. For example, he said some shoppers are buying just a refrigerator instead of an entirely new suite of kitchen appliances. For Lowe’s, that pullback is noticeable, since it is the top seller of appliances in the U.S. and draws 14% of its sales from the category, he said.
Online sales declined 4% in the quarter, as pressures on discretionary spending showed up there, too. Ellison said the company is stepping up its merchandising and marketing to emphasize value to price-sensitive shoppers. He said customers have also responded well to its outlet stores, which sell discounted big and bulky items like patio furniture or appliances that have been scratched or dented. It opened its 15th outlet location during the third quarter.
Lowe’s competitor, Home Depot, beat Wall Street’s fiscal third-quarter earnings and revenue expectations, even as its sales fell 3% year over year. Home Depot said customers are still fixing up their homes, but noticed for the past several quarters that more of them are taking on smaller and less pricey projects. Home Depot Chief Financial Officer Richard McPhail also said “the worst of the inflationary environment is behind us.”
To view the full results, visit the Lowes website.
Walmart shares fall as retailer sounds note of caution on consumers ahead of holidays
Walmart said U.S. consumers are acting more cautious with spending as the holiday season gets underway, even as the largest U.S. retailer raised its forecast for sales and profit for the year. The company’s shares fell 7.7% on November 16 as executives said higher interest rates and dwindling household savings have made sales “somewhat uneven” over the past two months.
Walmart’s bigger focus on groceries has provided a bulwark against the broad slowdown in discretionary spending with more than half of the company’s merchandise comprising of food and other daily essentials.
Walmart’s Chief Financial Officer John David Rainey told Reuters the company saw shoppers slow purchases in the second half of October, but rebound in early November on items including apparel and home goods that have been out of favour for most of the year. “This gives us reason to think slightly more cautiously about the consumer versus 90 days ago,” Rainey said on the conference call.
While shopper visits rose 3.5% in the third quarter, shoppers are “still very choiceful and using discretion,” and are waiting for promotional events like Black Friday and Cyber Monday, he said, echoing comments made by Target’s CEO.
U.S. consumer spending accounts for roughly 70% of the economy, and core U.S. retail sales rose just 0.2% in October as spending ebbed due to higher borrowing costs and the lingering effects from inflation. Wholesale food inflation has started to decline, portending possible relief for consumers in coming months.
Retailers have warned that this year’s holiday season will be less robust than in years past. In addition to Walmart, retailers Children’s Place and Bath & Body Works also reported mixed quarterly results Thursday. Macy’s had strong results.
“With this type of volatility, we think it does make sense for Walmart to be slightly more cautious on the consumer heading into the holiday season, ” D.A. Davidson analyst Michael Baker said in a note.
But the forecast, which according to Art Hogan, chief market strategist at B Riley Wealth, missed the midpoint of Wall Street estimates, sets up sets up Walmart for “another beat,” Baker said.
Walmart has used its size and scale to keep prices low despite inflation, drawing in not just low-income shoppers but also more high-income consumers looking for cheaper options to stretch their budgets. Prices on food and consumables have been “more in check” than the prior year while prices of general merchandise goods like apparel and home goods have fallen between three and six percent, Rainey said.
Falling prices in general merchandise will allow Walmart to cut prices for the holiday season, executives said on the conference call.
Walmart shares had hit an all-time high of $169.91 on November 15 following results from rival Target, which projected fourth-quarter earnings above estimates. Walmart’s shares are up nearly 20% in 2023 and are relatively more expensive than peers.
Walmart now expects fiscal 2024 earnings per share between $6.40 and $6.48, up from its prior forecast of $6.36 to $6.46.
It sees comparable sales for the full year rising 5% to 5.5%, compared with an increase between 4% and 4.5% estimated previously. Comparable sales, or sales at Walmart’s U.S. stores open at least a year, rose 4.9% ended Oct. 31, excluding fuel, above estimates of 3.35%. Online sales rose 15%.
The company posted an adjusted profit of $1.53 per share in the third quarter. Analysts on average were expecting $1.52 per share.
Best Buy flags weakening consumer demand heading into holiday shopping season
Top U.S. electronics retailer Best Buy forecast a bigger decline in annual comparable sales and pointed to “difficult to predict” consumer demand, days ahead of Black Friday that signals the start of the holiday shopping season. Elevated interest rates, a shift to spending on services from goods and a resumption in student loan repayments have further strained appetite for electronics and home-office products after a pandemic-led surge.
“In the more recent macro environment, consumer demand has been even more uneven and difficult to predict,” CEO Corie Barry said in a statement. The company is managing planned promotions to remain price competitive in an environment where consumers are very deal focused and making trade-offs right for their budget, she added.
Retailers from Lowe’s to Walmart have warned of cautious consumer spending as the holiday shopping season gets under way. U.S. holiday sales are expected to grow at a slower pace in 2023, according to data from the National Retail Federation.
Best Buy’s third-quarter revenue fell 8.2% to $9-billion in the U.S. as demand fell again across appliances, home theatre, computing and mobile phones, signalling that higher discounts failed to entice shoppers. “In our view, the business is still in a period of declines and it is too difficult to call the positive inflection point in demand,” Citi analyst Steven Zaccone said in a note.
Total revenue fell to $9.76-billion in the quarter ended Oct. 28 from about $10.59-billion in 2022, missing LSEG estimates of $9.90-billion. Best Buy cut its annual comparable sales forecast to a range of 6.0% to 7.5% decline from a prior range of 4.5% to 6.0% fall, citing “challenging” November trends.
Source: Globe and Mail