What’s going on here?
Lowe’s took a hacksaw to its yearly forecast on Tuesday – a move that didn’t surprise observers.
What does this mean?
Home Depot’s recent sorry performance gave investors a clue that something had gone awry in the DIY world, and Lowe’s fate has driven the point home. Granted, the companies’ stories weren’t totally identical last quarter: Lowe’s managed to outperform analysts’ sales predictions, after all, while Home Depot clocked up a near-record miss. But the overarching narratives were eerily similar: as customers tighten their purse strings, discretionary spending has taken a backseat to increasingly costly essentials – and the home renovation boom triggered by the pandemic has truly fizzled out. That’s not exactly the stuff of home-improvement fairy tales, so Lowe’s followed in Home Depot’s footsteps, pruning its sales and profit forecasts for the year.
Why should I care?
For markets: Bad, but not worst.
Lowe’s stock actually jumped after the announcement, probably because its update wasn’t as grim as its competitor’s. See, Lowe’s cut less from its forecast than Home Depot did, and the firm’s more effective cost control meant it was better than its rival at maintaining profit margins. Lowe’s professional business segment continued to flourish too – and pro customers are known to visit more often, spend more, and stick around, making them the ultimate retail trifecta. Put it all together, then, and you’re a step closer to understanding why Lowe’s stock has outperformed Home Depot’s by 10% this year.
The bigger picture: Building confidence.
Despite the rough patch, Lowe’s seems hopeful about its long-term outlook – and that confidence could be well-founded. Data out last week showed that homebuilder sentiment is warming up for the first time in almost a year, with a lack of homes spurring construction hopes. If that trend continues, demand for home improvement goods could flower once again, turning Lowe’s current gloom into a high bloom over time.
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