TLDR:
- Home Depot and Lowe’s cut full-year guidance due to slower sales
- DIY home improvement projects declining amid high interest rates
- Both companies seeing pressure on big-ticket discretionary purchases
- Professional contractor segment performing better than DIY
- Companies expect recovery when interest rates decrease
Home Depot and Lowe’s, the two largest home improvement retailers in the United States, are facing challenges as do-it-yourself (DIY) home renovation projects slow down.
Both companies recently reported disappointing second-quarter results and lowered their full-year guidance, citing high interest rates and economic uncertainty as key factors affecting consumer behavior.
Lowe’s reported a 5.6% drop in quarterly sales to $23.59 billion, falling short of analyst estimates. Same-store sales, a crucial metric for retailers, declined by 5.1%, which was worse than expected.
Home Depot’s results were similarly underwhelming, with U.S. same-store sales down 3.6% for the quarter.
The primary cause of this slowdown appears to be the current economic environment. High interest rates and inflation have led many homeowners to put off large renovation projects. Marvin Ellison, CEO of Lowe’s, stated,
“We’re all aware that we have an environment of elevated interest rates and inflation, and because of that, the DIY customer is just on the sidelines waiting for some form of an inflection to take place.”
Both retailers noted particular weakness in big-ticket discretionary purchases, such as kitchen and bathroom renovations and flooring projects. This trend is especially impactful for Lowe’s, as approximately 75% of its business comes from DIY customers.
The housing market’s current state is also contributing to the slowdown. With home prices at nearly 20-year highs and mortgage rates elevated, many potential homebuyers have been priced out of the market. This reduction in home sales means fewer opportunities for new homeowners to undertake renovation projects.
The “lock-in effect” is playing a role. Homeowners who secured low mortgage rates during the pandemic are less likely to sell their homes and take on higher-rate mortgages, reducing the motivation for pre-sale home improvements.
Despite these challenges, both Home Depot and Lowe’s are seeing strength in their professional contractor segments. Lowe’s reported a mid-single-digit increase in same-store sales for its Pro business, while Home Depot has been actively expanding its services for professional customers.
Looking ahead, both companies expect a recovery in the home improvement sector once interest rates begin to decrease. However, the timing of this recovery remains uncertain. Analysts suggest that even if mortgage rates become more favorable soon, there could be a lag of six months to a year before DIY spending picks up significantly.
In response to these headwinds, Home Depot and Lowe’s are focusing on strategies to weather the current downturn and position themselves for future growth. This includes investing in their professional customer segments and improving operational efficiency.
While the near-term outlook remains challenging, both companies maintain a positive long-term view of the home improvement market. As Ellison of Lowe’s stated,
“Although we are unable to call the date for the recovery in home improvement, we are confident that we’ll be in a strong position to take share when the market begins to inflect.”
