Home Depot, Lowe’s face high interest rates, falling home prices

Elevated mortgage interest rate and House prices hit record high It’s preparing to end the boom in home improvement spending that fueled growth at Home Depot Inc. and Lowe’s Cos. during the pandemic.

Between 2020 and 2022, both companies benefited from lockdown consumers renovating. Historically lower borrowing costs have also spurred new home purchases. Now, with mortgage rates near their highest levels in two decades and home sales plummeting, retailers are expected to report simultaneous declines in full-year revenue growth for the first time since fiscal 2010.

Home Depot, which reports third-quarter results on Tuesday and Lowe’s a week later, is expected to post its fourth consecutive decline in comparable sales and its third consecutive decline in overall revenue. Analysts expect Lowe’s to report third-quarter results. Same-store sales fell nearly 5% during the period, the largest decline since 2009.

Wedbush analysts led by Seth Basham said: “Numerous data points — including poor earnings reports from rivals Tractor Supply and Floor & Decor — point to continued pressure on home improvement retail demand, with October’s weakness now more likely. This will continue in the short term,” I wrote in my notes.

Because many Americans put off home improvement projects and appliance purchases in 2020 and subsequent pandemic years, many home projects won’t need to be tackled for several years.The trend is also affecting retailers, including Maytag owners Whirlpool Corporation To Best Buy Company

“Personal home improvement spending has taken up a larger share of wallets over the past few years, and that share has increased as people shift from goods to services,” Bloomberg Intelligence analyst Drew Reading said in an interview. Fall back.”

Redding predicts sales at both Home Depot and Lowe’s will decline in the first half of next year as discretionary spending continues to face pressure. Last week, Baird analysts lowered their fourth-quarter and all-sales forecasts for Home Depot and Lowe’s. In 2024, economic conditions slow and interest rates are likely to remain high.

Back to normal

To be sure, both companies’ annual revenue is still well above 2019 levels, meaning the sales decline may represent a return to a more typical growth pace rather than a deeper dive into trouble.

Telsey Advisory Group analyst Joseph Feldman wrote: “Home Depot should remain a winner in retail over the long term due to its best-in-class execution, digital capabilities and hybrid work-from-home arrangements resulting in increased maintenance and repair activity.” in the note.

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