Lowe's Retreats as Fading DIY Spending Leads to Slashed FY24 Financial Targets

Home improvement retailer Lowe's (LOW) has experienced a decline in do-it-yourself (DIY) spending, which has resulted in the company lowering its financial targets for the fiscal year 2024 (FY24). This news comes after rival Home Depot (HD) narrowed its FY24 outlook, taking the worst-case scenario off the table. Lowe's reported tepid same-store sales growth and a decline in revenue year-over-year (YoY) for the third quarter (Oct) of 2023, which missed analyst estimates. In comparison, Home Depot reported better results, leading to increased selling pressure on Lowe's stock.

Lowe's FY24 Forecasts Reduced

Lowe's has lowered its FY24 earnings, sales, and comparable store sales (comp) forecasts. The company now expects sales to total $86 billion, down from its previous forecast of $87-89 billion. Comparable store sales are expected to be negative 5%, below the negative 2-4% prediction. Lowe's has also reduced its FY24 adjusted earnings per share (EPS) projection to $13.00, down $0.40 from the midpoint of its previous $13.20-13.60 forecast. This news comes after Home Depot narrowed its FY24 outlook, which may have prompted Lowe's to adjust its expectations.

Deteriorating DIY Demand

Retreating DIY spending has been a consistent headwind for Lowe's throughout the year. However, decent profitability and outperforming its primary rival helped investors look past this blemish. Lowe's registered a slimmer earnings beat in the third quarter compared to the previous two quarters while underperforming Home Depot, which is piling on additional selling pressure today.

Gross Margins Flat

Gross margins were essentially flat year-over-year at 33%, further highlighting the impact of fading consumer demand on Lowe's. The company's gross margins were affected by higher transportation and distribution costs, partially offset by lower inventory costs.

Pro Division Boosts Lowe's

On a positive note, Lowe's has been bolstering its Pro division, leading to another round of positive Pro comps in the third quarter. The company's Pro business has been a bright spot, and Lowe's is investing in expanding its Pro market share. However, Home Depot is also investing aggressively in maintaining and expanding its Pro business, improving the sales experience, and building out capabilities to better serve more complex projects.

Challenges Ahead

As pandemic-related tailwinds that kicked off a rush of DIY spending continue to fade, while demand for services from professional customers remains stable, Pro sales could continue to eclipse DIY over the next several quarters. This dynamic paints a gloomy picture for Lowe's as it plays catch-up to Home Depot's established Pro business. Both companies face challenges ahead as interest rates and inflationary pressures keep a lid on in-store traffic and overall demand, potentially setting the stage for a challenging year ahead.

In conclusion, Lowe's has experienced a decline in DIY spending, leading to the company lowering its FY24 financial targets. The company's third-quarter results missed analyst estimates, and its stock has come under increased selling pressure as a result. Lowe's Pro division has been a bright spot, but the company faces challenges as it plays catch-up to Home Depot's established Pro business. As interest rates and inflationary pressures continue to impact the home improvement industry, both Lowe's and Home Depot will need to navigate these challenges to remain competitive in the market.

LOW shares are down nearly 3% in afternoon trade following the company's premarket release.