Are Home Depot and Lowe’s about to hit a sales wall?
A recent softening in the red-hot housing market and a reduction in homeowners tackling DIY projects has raised concerns about near-term growth rates for Home Depot and Lowe’s.
Second-quarter sales fell short of analyst targets at Home Depot.
Craig Menear, CEO, told analysts that sales had shifted toward more weekday and less weekend sales, a trend the chain attributed to consumers returning to travel and other recreational activities.
Customers have also become “more comfortable taking on larger projects” as evidenced by sales in its “Pro Customer” segment, which includes electricians, plumbers and painters, outpacing those of DIY customers for the second straight quarter.
The comp gains in the latest quarter were led by kitchen and bath and lumber. The chain saw negative comps in categories such as paint, hardware and indoor/outdoor garden that had been strongest a year ago as stuck-at-home Americans first started splurging on home upgrades, including setting up work offices.
Richard McPhail, EVP and CFO, nonetheless said the fact that home prices are up over 20 percent from two years ago should nonetheless drive further repairing and remodeling investments. “As we look forward, not only have we seen that home price appreciation, but the homeowner balance sheet is incredibly healthy,” he said. “The state of mortgage finance is incredibly healthy. And so, that’s some of the reasons why we’re optimistic.”
Lowe’s second-quarter sales topped expectations as strengthening in professional sales offset DIY declines. Strong comps across kitchen and bath, flooring, appliances and decor came on top of 20 percent growth in those categories last year.
Marvin Ellison, CEO, likewise said home price appreciation and historically low mortgage rates supports a “very positive” outlook for residential investment. He further noted that the near-term housing turnover pressures aren’t related to supply.
“Our research shows that it will take years for the supply of homes to meet the projected demand. This remains a very positive indicator for home improvement,” said Mr. Ellison. “In addition, the customers’ mindset regarding their home is very straightforward. As long as their home is increasing in value, they see upgrades and enhancements to their home as an investment and not an expense.”
- The Home Depot Announces Second Quarter Results – Home Depot
- Home Depot (HD) Q2 2021 Earnings Call Transcript – The Motley Fool
- Lowe’s Reports Second Quarter 2021 Sales And Earnings Results – Lowe’s
- Lowe’s (LOW) Q2 2021 Earnings Call Transcript – The Motley Fool
- Home Depot shares tumble despite earnings beat, retailer rang up fewer customers as DIY trends weaken – CNBC
- Lowe’s Stock Rode the Housing Boom. Now It May Be Ending. – Barron’s
- Big-ticket spenders boost Lowe’s sales, shares jump – Reuters
- Home Depot’s U.S. Sales Slow as DIY Frenzy Tapers Off – Reuters
DISCUSSION QUESTIONS: Do you see near-term sales pressures for home improvement chains as the U.S. economy opens up? Are you any more or less confident that home improvement chains will gain a long-term boost as a result of the pandemic?