Lowe’s beat Wall Street’s earning expectations on Wednesday as demand for home projects picked up during the quarter, but homeowners’ appetite for bigger projects remained softer.
The retailer also announced its latest effort to attract more business from home professionals. It said on Wednesday that it has struck a deal to acquire Foundation Building Materials, a distributor of drywall, insulation and other interior building products for large residential and commercial professionals, for about $8.8 billion.
Home improvement demand has been weaker as higher borrowing costs and mortgage rates keep some homeowners and potential homebuyers on the sidelines. In an interview with CNBC, CEO Marvin Ellison said the company’s sales improved as the quarter went on and saw a particular pop in July.
But he attributed that to better weather and said “it’s too early for us to call that a trend.” He said he anticipates activity will pick up when mortgage rates fall below 6%. The average rate for a 30-year, fixed-rate mortgage is slightly above 6.5%, according to Freddie Mac, compared with the below-3% levels around the beginning of the Covid pandemic.
To overcome that slower backdrop, Lowe’s has looked to home professionals — a steadier and more lucrative customer — to drive sales. It has made two pro-focused acquisitions in recent months: Artisan Design Group, a company that provides design services and installation of flooring, cabinets and countertops for homebuilders and property managers, and Foundation Building Materials, which it announced on Wednesday.
“We believe this is where the inflection and the growth is coming when housing finally unlocks, and we want to be positioned for it. And we think this acquisition helps us to do that,” Ellison said.
Here’s what the company reported for the fiscal second quarter compared with what Wall Street was expecting, based on a survey of analysts by LSEG:
Earnings per share: $4.33 vs. $4.24 expectedRevenue: $23.96 billion vs. $23.96 billion expected
In the fiscal second quarter, Ellison said the home improvement retailer saw “solid performance” in both the do-it-yourself and the home professional sides of its business.
In the three-month period that ended Aug. 1, Lowe’s net income rose to $2.4 billion, or $4.27 per share, from $2.38 billion, or $4.17 per share, in the year-ago period. Revenue increased from $23.59 billion in the year-ago quarter.
Comparable sales rose 1.1% in the quarter. Sales trends improved with each month, with comparable sales down 1% in May, up 0.3% in June, and up 4.7% July, CFO Brandon Sink said on the company’s earnings call.
However, Sink said Lowe’s strategy to grow online sales and pro sales, rather than a better home improvement backdrop, will move the needle this year.
“Our expectations for a roughly flat home improvement market and the performance of our core business remain unchanged,” he said.
Lowe’s revised its full-year outlook to reflect the acquisition of Artisan Design Group.
For the full year, Lowe’s said it expects total sales of $84.5 billion to $85.5 billion, an increase from its previous range of $83.5 billion to $84.5 billion. It reiterated its comparable sales, a metric that takes out one-time factors like store openings or closures, saying they will be flat to up 1% from the prior year. It expects earnings per share for the year of approximately $12.10 to $12.35, down slightly from its prior range of $12.15 to $12.40.
Online sales grew 7.5% during the quarter, as Lowe’s added more features to its website and gained traction with its customer loyalty program, MyLowe’s Rewards, Ellison said on the earnings call.
He said it has reached out to shoppers in new ways, too. It’s trying to capitalize on marketing deals with soccer star Lionel Messi and the NFL. It launched a creator network with social media influencers, including YouTuber MrBeast, to reach more Gen Z and millennial customers through social media.
On the pro side, he said, Lowe’s acquisitions will allow it to carry a wider range of products and cater to home professionals who are tackling more complex projects.
Like other retailers, Lowe’s faces higher costs from tariffs. About 60% of its goods are sourced from the U.S., and the company is trying to diversify its imports so it doesn’t rely too heavily on a single other country, Ellison said.
Lowe’s rival Home Depot missed Wall Street’s expectations for quarterly sales and earnings on Tuesday, but stood by its full-year forecast for 2.8% growth of total sales.
Home Depot also has bulked up its pro business with acquisitions. It acquired SRS Distribution, a Texas-based company that sells supplies to professionals in the roofing, pool and landscaping businesses, last year for $18.25 billion. Earlier this summer, it announced it was buying GMS, a building products distributor, for about $4.3 billion.
Correction: A previous version of this story misstated Lowe’s revenue for the quarter.
