During the summer, economic concerns and inflation deterred individuals from focusing on home repairs. The leading home improvement retailers, Home Depot (HD) and Lowe’s (LOW), reported their fiscal second-quarter earnings amidst significant economic apprehension. Marvin Ellison, CEO of Lowe’s, expressed concerns to analysts regarding uncertainty surrounding interest rates and inflation, specifically noting the “lock-in effect,” where high current mortgage rates discourage home turnover, which is at its lowest level since the mid-1990s.
Ellison acknowledged some positive trends in professional and online sales but mentioned ongoing challenges in the DIY segment. Similarly, Home Depot’s CEO, Ted Decker, highlighted the impact of higher interest rates and macroeconomic uncertainties on consumer demand, leading to weaker spending on home improvement projects. Decker noted that spring projects were also affected by drastic weather changes and emphasized a cautious sales outlook for the year due to the uncertain consumer demand.
Billy Bastek, Home Depot’s Executive Vice President of Merchandising, observed that professional customers outperformed DIY customers, though both segments faced declines during the quarter.
Despite these challenges, glimmers of hope were noted. A study from the Remodeling Futures Program at Harvard University’s Joint Center for Housing Studies projected a slight upturn in homeowner expenditure on improvements and repairs through mid-2025, following a modest downturn. The Leading Indicator of Remodeling Activity report anticipated a minimal decline in annual spending (-0.5%) by the second quarter of 2025. Carlos Martín, the program’s director, noted that, despite economic uncertainties, several drivers of spending were beginning to strengthen post-pandemic.
Abbe Will, the associate director of the Remodeling Futures Program, predicted that annual spending on homeowner improvements and maintenance would reach $466 billion by mid-2025, consistent with spending over the past year. Will suggested that home remodeling activity would stabilize, slightly below the peaks of the previous year.
On September 18, the Federal Reserve reduced the Federal Funds Rate by 0.5 percentage points to a range of 4.75% to 5%, which positively influenced Home Depot and Lowe’s shares. Analysts from Mizuho Americas anticipated that with the rate cuts and a Fed easing cycle, home-related companies might witness the start of a fundamental recovery exiting fiscal 2024. Mizuho reiterated its Top Pick designation for Lowe’s and positive views on Home Depot and Wayfair (W).
On September 24, Oppenheimer adjusted its price targets for Home Depot and Lowe’s, raising Home Depot’s target to $400 from $345 and upgrading Lowe’s to outperform with the same price target, indicating significant upside potential. The firm’s optimistic stance reflects Lowe’s discounted share valuation and potential operational improvements. Oppenheimer expects demand trends in home improvement retail to gradually stabilize, supported by lower lending rates and increased housing activity, prompting larger-ticket purchases among consumers.