Lowe’s on Wednesday reported second-quarter earnings that beat analysts’ expectations as the company said improved operations offset lower-than-expected sales that were hurt by a shortened spring.
The home improvement retailer said sales to do-it-yourself customers were also hurt by lower demand for certain discretionary items, specifically in seasonal products like patio furniture and grills and some popular pandemic products such as freezers.
Transaction volume was down 6% over the quarter, but average ticket rose 6.5% partially due to inflation. CEO Marvin Ellison said despite rising costs, the consumer looks healthy.
“Rather than the DIY consumer trading down like you hear from some retailers, in many cases we were seeing the opposite,” Ellison told CNBC. “The customer’s actually trading up to innovation and trading up for new.”
Comparable sales fell 0.3% overall, though home improvement in the U.S. saw a slight growth of 0.2% versus the same quarter last year.
Lowe’s saw an increase in sales to professionals such as contractors and electricians. Ellison said the company’s new loyalty programs are attracting more professional contractors and driving repeat visits. Professionals who were enrolled in the program spent three times more than those not enrolled, he said.
Though homebuilder sentiment turned negative this month, Ellison remains optimistic about the state of home improvement. He noted the age of homes, the level of disposable income, and housing price appreciation all suggest continued strength in Lowe’s home improvement business.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
Lowe’s said it now expects total and comparable sales for the year toward the bottom of its outlook range. It had forecast sales of $97 billion to $99 billion and comparable sales to be down 1% to up 1%. Operating income and earnings are expected to be toward the top end of its previous forecast.
“We expect our DIY customer and demand to improve in the back half of the year,” Ellison told CNBC. “We also expect to continue to have accelerated growth with the pro customer.”
Shares of the company were up around 3% in pre-market trading.
For the three month period ended July 29, Lowe’s reported a net income of $2.99 billion, down from $3.02 billion last year. Net sales slipped to $27.48 billion, from $27.57 billion a year ago.
The results come after Home Depot on Tuesday reported better-than-expected earnings and revenue for the second quarter, and stood by its forecast. Many people took up home improvement projects as they hunkered down during the pandemic, and investors have been watching to see whether that spending is holding up
Lowe’s has a different customer mix than Home Depot, which tends to get more of its sales from home professionals. Lowe relies more heavily on do-it-yourself customers, which makes it more vulnerable to shifts in demand.
“Our results in the first half were disproportionately impacted by our 75% DIY customer mix, which was partially offset by our double-digit Pro growth for the ninth consecutive quarter,” Ellison said in a statement.