Home Depot and Lowe’s Face Earnings Pressure Amid Housing Woes

URGENT UPDATE: Home Depot and Lowe’s are set to report earnings this week, grappling with significant challenges including a stalled U.S. housing market, rising tariffs, and a cautious consumer. Investors are eagerly awaiting insights into the potential recovery as the retail giants navigate these turbulent waters.

Reports indicate that both companies are facing a tough summer. According to data from the National Retail Federation (NRF), building materials and garden supply retailers experienced year-over-year sales drops of at least 4% each month from May to July. This downturn comes as consumers prioritize essentials over discretionary spending, with Mark Mathews, NRF’s chief economist, stating, “Right now, the consumer is more focused on essentials, and pricing is a key driver of activity.”

Despite these challenges, Home Depot and Lowe’s may be better positioned than smaller competitors, such as Ace Hardware and True Value Co. Analysts from Telsey Advisory Group noted that the two home improvement chains possess strong brand power and competitive pricing that allow them to capture market share.

In terms of sales, Home Depot is expected to announce a 5.1% revenue increase for its second quarter ending in July, compared to a modest 0.6% rise last year. Lowe’s, set to report earnings on Wednesday, is anticipated to see a 1.6% revenue growth in the same timeframe.

The ongoing housing market recovery is a focal point for both companies. Sheraz Mian of Zacks Investment Research suggests that a rebound could be imminent, particularly with the Federal Reserve potentially slashing interest rates as early as September. In the meantime, both retailers are expanding their offerings for professional contractors who tend to buy in bulk and are less affected by pricing fluctuations.

Home Depot has reported growth in key professional product categories such as concrete, gypsum, and siding. However, tariffs remain a wild card for both companies. Home Depot and Lowe’s each source more than half of their products from North America, with Lowe’s obtaining about 20% from China. Home Depot has indicated plans to diversify its supply chain further, committing to avoid raising prices due to tariffs, although some items may be phased out. Conversely, Lowe’s has stated that any price hikes will be concentrated in the latter half of the year.

As these earnings reports approach, the market will be closely watching for any signs of recovery or further challenges in the home improvement sector. The impact of consumer behavior and economic conditions will be critical as Home Depot and Lowe’s navigate this complex landscape.

Stay tuned for live updates as these earnings calls unfold, providing crucial insights into the future of home retail.