Home Depot and Lowe’s unveil their results this week in a context marked by powerful opposite winds: fragile recovery of the American real estate market, customs duties, and consumers who are reluctant to initiate large expenses. Investors are impatiently awaiting clarification over the duration of this storm.
Spring and summer were to be “the Super Bowl season” for the house development sector, said Billy Bastk, executive vice-president of purchases at Home Depot, at the last conference on results.
If this was the case, the game ended in clumsiness.
The retailers of building materials and gardening products recorded sales drops of at least 4 % each month from May to July, while most of the other sectors displayed growth, according to data from the National Retail Federation (NRF).
“Today, the consumer focuses more on the essentials, and the price remains the main purchasing engine,” explains Mark Mathews, chief economist at the NRF.
“I am not sure that there is currently a real need or a sufficient motivation to stimulate expenses in the building materials and gardening sector,” added Mathews, adding that retail sales had jumped in July thanks to the start of the school year.
High interest rates also continue to curb the rotation of the real estate market.
However, according to analysts, Home Depot and Lowe’s are doing better than their competitors and seem better armed to cross the storm than more modest brands like Ace Hardware, True Value Co or independent hardware stores.
The power of their brand and their competitive pricing policy give the two giants to improve the habitat a solid competitive advantage, and “they continue to gain market share”, observes Joe Feldman, analyst at Telsey Advisory Group, even if their customs duties have increased compared to the previous quarter.
According to Affinity Solutions data on bank card purchases, Home Depot sales remained stable from one year to the next in May and July, with a decline of 3 % in June. Lowe’s recorded a slight growth in May and July, supervising a 1.5 % drop in June.
According to data compiled by LSEG, Home Depot is expected to announce an increase of 5.1 % of its turnover in the second quarter on Tuesday (closed in July), against an increase of 0.6 % last year. Lowe’s, whose results are expected on Wednesday, should display growth of 1.6 % over the same period.
The obstacles persist
The long -awaited takeover of the real estate market will be at the center of discussions during the conferences on the results. Sheraz Mian, director at Zacks Investment Research, anticipates an imminent rebound, while the Fed could start lowering its interest rates in September.
In the meantime, the brands develop their activity with building professionals, who buy roughly and are less sensitive to prices. Home Depot thus recorded the last quarter of growth in categories such as concrete, plaster or cladding, intended for professionals.
Customs duties remain an uncertainty factor, even if they weigh less than for other retailers. Home Depot and Lowe’s get more than 50 % in North America, but Lowe’s also imports around 20 % of its China products.
Home Depot has announced its intention to further diversify its supply chain, specifying during the last conference on the results that no price increase was provided for due to customs duties – but that certain items could disappear. Lowe’s has indicated that the price increases would be concentrated on the second half of the year.
