Home improvement retailers Home Depot Inc. (NYSE: HD) and Lowe’s Companies Inc. (NYSE: LOW) recently reported their fourth quarter 2022 earnings results. Both companies saw sales fall short of expectations and they have both forecasted a decline in the home improvement market in the near term. Here’s a look at how these two rivals fared in their most recent quarter:
In the fourth quarter of 2022, Home Depot posted sales of $35.8 billion, which saw little change from the $35.7 billion reported in the same period last year. Its comparable sales decreased 0.3% in the quarter. EPS rose 3% year-over-year to $3.30.
Lowe’s sales in Q4 2022 rose 5% year-over-year to $22.4 billion but were lower than expected. Its comparable sales dropped 1.5%. Adjusted EPS rose 28% YoY to $2.28.
During the fourth quarter, Home Depot’s comp average ticket increased 5.8%, driven by inflation across product categories and demand for new products. Comp transactions fell 6%. Lowe’s comp average ticket rose 4.8%, fueled by product inflation and higher Pro sales, but was offset by a decline in comp transaction of 5.5%.
Both Home Depot and Lowe’s saw strength in the Pro customer category during Q4. Home Depot’s Pro sales growth surpassed DIY in Q4 while Lowe’s witnessed strong sales in Pro as well as solid demand in DIY across core home improvement categories. Both companies said their Pro customers have healthy backlogs. Home Depot and Lowe’s saw positive comps across categories like building materials, plumbing and millwork during the fourth quarter.
Market trends and outlook
Home Depot and Lowe’s have both projected a decline in the home improvement market in 2023 but they both remain optimistic on the long-term outlook for the industry.
Home Depot expects to see flat real economic growth and consumer spending in 2023. The company is seeing transactions normalize as consumers move their spending to services from goods and it believes the home improvement market would see a decline in the low single digits if this shift persisted at its current pace. Home Depot anticipates a moderation in demand for home improvement in 2023 but it believes the foundation of the market remains strong for the long term.
Lowe’s is seeing positive trends in disposable personal income, home price appreciation and housing stock age, which are the main drivers of its business. Factors like remote work and millennial household formation are also tailwinds. Consumers are choosing to upgrade their existing homes to meet their changing needs. All these factors give it confidence in the long-term prospects of the industry.
Lowe’s believes residential investment will see pressure in 2023 and due to high levels of inflation, high interest rates and caution on the part of the consumer, it is forecasting a slight decline in the home improvement market.
Home Depot expects sales growth and comparable sales growth to be approx. flat in FY2023 compared to FY2022. EPS is expected to decline in the mid-single digits. Lowe’s expects total sales to be approx. $88-90 billion in FY2023. Comparable sales are expected to be flat to down 2% versus last year. EPS is estimated to be $13.60-14.00.
Home Depot’s stock has dropped 8% over the past 12 months while Lowe’s stock has dropped 11%.
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