Lowe’s
is expected to take a hit from slow home sales when it reports its third-quarter results on Tuesday morning, but the big-box chain could still make strides against Home Depot.
Both
Lowe’s
(ticker: LOW) and
Home Depot
(HD) have had to navigate a tricky environment for sales of home-improvement products. High interest rates have made it harder to buy homes—a common trigger for remodeling efforts—and discouraged other big-ticket projects.
Home Depot made that point last week, saying that while consumers were still “resilient,” they were cutting back. Lowe’s is likely to echo that view, analysts say.
Wall Street is expecting Lowe’s third-quarter revenue to fall by 11% from the same quarter a year ago to $20.9 billion, according to
FactSet.
Same-store sales are projected to decline by 5.4% this quarter.
Analysts have penciled in adjusted earnings of $3.02 a share.
One of the big debates heading into Tuesday’s report is whether Lowe’s will outperform Home Depot. AB Bernstein analyst Dean Rosenblum believes Lowe’s could have the advantage this quarter, thanks to the strides the company is making in expanding its offerings for professional contractors.
Home Depot’s Pro business has been bigger than Lowe’s over the past years, but Lowe’s is steadily catching up. In recent quarters, sales to contractors have grown at a faster clip at Lowe’s than at Home Depot.
Indeed, while Pro sales outperformed do-it-yourself sales in Home Depot’s latest quarter, it wasn’t by much, the company said in an earnings call. The company reported “the narrowest gap” between Pro and DIY sales, Home Depot CEO Edward Decker said.
“We believe LOW has years of runway for Pro share growth,” Rosenblum wrote. Rosenblum has an Outperform rating on Lowe’s and a Market-Perform on Home Depot.
Joseph Feldman, analyst at Telsey Advisory Group, is more skeptical. He said that the challenges facing the industry “have intensified beyond expectations” since the end of August. Soft earnings results from other home improvement companies have added to his concerns, he added. He has Market Perform ratings on both Lowe’s and Home Depot.
“For the stock to return to sustained outperformance relative to the
S&P 500,
investors likely will need clearer signs the housing market is improving and consumers are taking on more and larger projects,” Feldman wrote.
The shares have gained 2.6% this year, underperforming the S&P 500’s 18% gain. Home Depot stock is down 2.1%.
Lowe’s is a Barron’s stock pick.
Write to Sabrina Escobar at [email protected]
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