By Nicholas P. Brown and Savyata Mishra
NEW YORK (Reuters) -Home Depot and Lowe’s report earnings this week amid big headwinds, including a stalled U.S. housing market recovery, tariffs, and a consumer allergic to big spending, with investors clamoring for insight on when the storm may pass.
Spring and summer were to be “the Super Bowl season” for home retail, Billy Bastek, Home Depot’s executive vice president of merchandising, said on last quarter’s earnings call.
If so, it proved a bit of a fumble.
Building materials and garden supply retailers saw year-over-year sales drops of at least 4% each month from May to July, even as most others posted growth, according to data from the National Retail Federation (NRF).
“Right now, the consumer is more focused on essentials, and pricing is a key driver of activity,” said Mark Mathews, chief economist at NRF.
“I’m not sure there is enough impetus, or need, to drive spending in the building material & garden supply space right now,” Mathews said, adding that retail sales had surged in July thanks to shoppers buying back-to-school items.
High interest rates, meanwhile, are keeping housing turnover low.
Relative to the competition, though, Home Depot and Lowe’s are in decent shape, analysts said, and they may be better poised to weather the storm than smaller home and garden retailers, such as Ace Hardware, True Value Co, and mom-and-pop hardware stores.
Strong brand power and competitive pricing give the two top home-improvement chains a wide moat and “they continue to take market share,” said Joe Feldman, an analyst at Telsey Advisory Group, though their tariff rates are higher than a quarter ago.
Credit card purchase data from Affinity Solutions showed Home Depot sales to be about even year-over-year for May and July, with a 3% drop in June. Lowe’s saw modest sales growth in May and July, sandwiching a 1.5% drop in June.
Home Depot is likely to report on Tuesday a 5.1% jump in revenue for its second quarter ending July, compared to a 0.6% rise last year, data compiled by LSEG showed. Revenue at Lowe’s – scheduled to report earnings on Wednesday – likely rose 1.6% in the same period.
HEADWINDS REMAIN
With a long-awaited housing market recovery in focus on the earnings calls, Sheraz Mian, director at Zacks Investment Research, believes a rebound is around the corner amid signs the Fed may cut interest rates starting in September.
In the meantime, the retailers have been expanding the part of their business that caters to professional contractors, who generally buy in bulk and are less price-sensitive. Home Depot last quarter reported growth in categories like concrete, gypsum, and siding, which are professional products.
Tariffs remain a wild card, if less so than for other retailers. Home Depot and Lowe’s each source more than half their goods from within North America, though Lowe’s also gets about 20% of its stock from China.
Home Depot has touted plans to further diversify its supply chain, and said on last quarter’s earnings call it would not raise prices due to tariffs – but that some items could disappear altogether. Lowe’s said last quarter that price hikes would be concentrated in the second half of the year.
(Reporting by Nicholas P. Brown in New York and Savyata Mishra in Bengaluru; Editing by Sayantani Ghosh and Sriraj Kalluvila)
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