Lowe’s is sticking to full-year earnings guidance despite weaker sales as spring projects provide a boost

lowes reported mixed results for the second fiscal quarter on Tuesday as consumers embarked on spring projects and helped offset sluggish demand for home improvement.

The company beat Wall Street's earnings estimates but fell slightly short of expected sales.

The hardware store retailer stuck to its forecast for the year as a whole. Total sales for this period are expected to be between $87 billion and $89 billion. Comparable sales are forecast to decline by 2% to 4% this fiscal year. Adjusted earnings per share are expected to be between $13.20 and $13.60.

Speaking to investors, CEO Marvin Ellison said that Lowe's is positive on the long-term prospects for home expansion given the aging population and low housing availability in the United States

But in the short term, things will get tougher for the company, he added.

“If you look at consumer sentiment, we see that we are seeing a decline in the home improvement market [do-it-yourself] discretionary spending,” he said. “And that's really the overall theme for us as we see the second half of the year.”

According to consensus estimates from Refinitiv, the company has performed as follows for the three-month period ended August 4, compared to analysts' expectations:

  • Earnings per share: $4.56 versus $4.49 expected
  • Revenue: $24.96 billion versus $24.99 billion expected

Shares of the company are up more than 3% in morning trade.

Lowe's net income for the three-month period was $2.67 billion, or $4.56 per share, compared to $2.99 ​​billion, or $4.68 per share, for the same period last year.

Net sales declined from $27.48 billion a year earlier.

Lowe's sales are slowing this year as unusually high demand fueled by the Covid pandemic eases. The home improvement retailer warned Wall Street about this slowdown earlier in the year and lowered its full-year guidance in May.

rival home depot has also warned of a slowdown in demand. Last week, the company reiterated its expectations for a more difficult year, despite reporting better-than-expected quarterly results. Home Depot CFO Richard McPhail said customers are tackling smaller projects and buying less expensive items like appliances.

Both retailers face a complex environment as consumers grapple with rising interest rates and higher prices for everyday items – but companies are also benefiting from a strong US labor market and housing shortage

Mortgage rates are at their highest in more than two decades, making first-time home purchases unaffordable for some and discouraging current homeowners from moving. Despite higher mortgage rates, home prices rose for the fourth straight month in May S&P CoreLogic Case-Shiller House Price Index.

As more Americans stay there, it should lead to higher investment in home renovations and projects. However, Ellison said that faltering consumer confidence is leading to lower sales of non-basic items.

“Our clients tell us that they feel good about their employment situation,” he said in a call to CNBC. “They're happy with the level of equity in their house and know there are projects they need to get done, but they're just waiting to see what's going to happen in the macro environment.”

Second quarter comparable sales declined 1.6% in the fiscal second quarter. That's still better than the 2.6% decline analysts were expecting, according to FactSet.

Lowe's said it was buoyed by spring projects, online growth and momentum among home professionals.

Lowe's has worked to attract more home professionals, who tend to be larger and more solvent companies. Only about a quarter of Lowe's sales come from home improvement, while at Home Depot they account for about half of sales.

Speaking to investors, Ellison said those professionals told Lowe's they had a number of projects in the pipeline. That helps drive purchases of paint, plumbing tools, and more.

But after a period of higher costs and out-of-stock items, falling prices are now contributing to lower sales, Ellison said in a call to CNBC. Not only have wood prices fallen significantly, the prices for household appliances have also fallen.

He said that home appliance brands have returned to pre-pandemic levels of promotions. These supplier-funded rebates would be factored into the company's guidance for the second half of the year, he said.

Lowe's shares closed at $217.59 on Monday, taking the company's market value to $127.5 billion. So far this year, Lowe's stock is up more than 9%. That's less than the roughly 14% gains seen by the S&P 500.

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