Lowe’s Declines After Forecast Renews Housing-Market Fears

  • Sales missed company’s goals due to August, September slowdown
  • Results follow troubling signs from larger rival Home Depot

Lowe’s Cos. suffered its worst stock decline in three months after the retailer posted disappointing third-quarter profit and cut its full-year forecast, renewing concerns that Americans are curtailing spending on their homes.

Earnings rose to 88 cents a share in the quarter, the Mooresville, North Carolina-based company said on Wednesday. Analysts estimated 96 cents on average.

The results are stoking fears that the housing market may be slowing down after years of robust growth. On Tuesday, larger rival Home Depot boosted its annual profit forecast, but didn’t raise its guidance for sales. Lowe’s, the second-largest home-improvement chain in the U.S., now expects full-year earnings of $3.52 a share, compared with a previous forecast of about $4.06.

“Our third-quarter operating results were below our expectations due to slower sales in the first two months of the quarter,” Chief Executive Officer Robert Niblock said in the statement. “While we expected moderation in the second half of the year, traffic slowed more than we anticipated in August and September before improving in October, which put pressure on our profitability.”

The stock fell as much as 5.7 percent to $65.12 in New York trading, the biggest intraday drop since Aug. 17. That followed a 9.2 percent decline this year through Tuesday’s close.

Widening Gap

Sales at Lowe’s stores open a year or more rose 2.7 percent, missing estimates for a gain of 3.2 percent. That means Lowe’s once again failed to show as much growth as Home Depot, which posted an increase of 5.5 percent. Since 2009, Lowe’s has only topped Home Depot twice in same-store sales, including the first quarter of this year.

“The widening Home Depot-Lowe’s gap suggests more multiple headwinds,” David Schick, an analyst for Consumer Edge Research, said in a note to clients.

Total revenue climbed 9.6 percent to $15.7 billion in the third quarter, which ended Oct. 28. that missed analysts’ $15.8 billion projection. Same-store sales fell in four regions in the northern U.S.

Niblock said in an interview that “extreme heat” hurt sales in August and that the chain’s marketing didn’t resonate with shoppers.

Home prices have been rising at a pace of around 5 percent for two years, supported by continued hiring, rising wages and low-cost mortgages. There’s also been a limited supply of houses -- especially on the cheap end. Data released by S&P CoreLogic Case-Shiller last month showed that trend continuing, with its 20-city property values index increasing 5.1 percent in August.

Trump Effect?

But a question on the horizon is what effect the election of Donald Trump may have on the chain. If Trump makes good on his campaign promises to boost government spending, it could increase inflation and thus borrowing costs. Mortgage rates already have gone up, which makes it harder for people to buy homes and that could slow down the industry.

“Interest rates are at historically low levels,” Niblock said. “They are still very attractive from a home-ownership standpoint. It’s too early to speculate on the impact of the change in administration.”

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