- Lowe's lowered earnings expectations, citing slower sales for big-ticket home-improvement projects.
- Its CEO says Americans are spending less as they wait "on the sidelines" for markets to improve.
- The outlook echoes Home Depot, which last week said it saw hurdles to clear before smoother times.
Play it again, Sam.
A week after Home Depot described American consumers as having a "deferral mindset" about spending, Lowe's is humming the same tune, saying American homeowners — and by extension the economy — are in a strange spot this summer.
Lowe's CEO Marvin Ellison said on Tuesday that the home-improvement retailer's DIY customers were "on the sidelines waiting for some form of an inflection to take place."
Ellison was speaking on the company's quarterly earnings call, during which Lowe's lowered its earnings expectations for the rest of the year because of a slowdown in sales for big-ticket discretionary projects.
Large projects represent about three-quarters of DIY sales for Lowe's, Ellison said, "so any pullback in these big-ticket discretionary categories is really more of a disproportionate impact to us."
Both Lowe's and Home Depot said high interest rates had led to lower home sales and refinancing activity, both of which are traditional drivers of expensive home-improvement projects.
Harvard's Joint Center for Housing Studies has estimated that annualized remodeling spending will continue to tick down this year, to about $450 billion, before edging up to $466 billion in 2025 as homeowners make upgrades "at a steadier and more sustainable pace."
With employment levels looking strong, the stock market going gangbusters, and home values at record highs, many homeowners are in remarkably good financial shape.
Some are splashing out on travel and entertainment, but many aren't in a position to shell out big bucks on a new kitchen or bathroom right now when borrowing costs are high.
That's by design, of course — the Federal Reserve raised rates in an effort to tap the brakes on the economy and get inflation under control, which it did.
But as more companies report shaky earnings, it's becoming clear that the clock is ticking for policymakers to loosen things up a bit and not allow pent-up demand to go dormant. Plus, it takes time for these things to work their way through the system.
"We think the near-term set-up remains tricky," Scot Ciccarelli, an analyst at Truist, wrote in a note on Lowe's results. "The negatives (softening fundamentals) will likely be offset by positives (probable rate cuts), but we remain aggressive buyers for medium/longer-term investors."
Lowe's, meanwhile, is betting on a rosy future, even if it involves a stretch of difficulty before getting there.
"We're aggressively working in this downturn," Ellison said, adding, "Whenever the macro inflection occurs, we just want to be ready to take advantage of it."