Lowe’s CEO Marvin Ellison says work-from-home and a robust housing market continue to give the home improvement retailer a boost

Key among the ways in which the home has shifted during COVID-19 is that for many it doubles as a workspace. He doesn’t see the nation’s workers heading back to the office in the same way they did before the pandemic.

“This drives a different kind of home spend that did not occur pre-pandemic,” he said.

“That bodes well for home improvement. The more you’re home, the more wear and tear there is and the more investment you make,” whether that’s for home organizing or other items.

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There are a number of other factors that Ellison says continue to bolster housing spend, among them high consumer savings, an aging housing stock, home price appreciation, and continued robust demand in the housing market.

“Consumers feel confident investing in a home,” he said.

Ellison also noted the “aging in place” trend, wherein baby boomers are hanging on to their homes and investing in modifications.

“They’re more active and independent, and want to change their homes for their changing mobility,” he said.

In November 2021, the company launched the Lowe’s Livable Home program in partnership with AARP to serve the needs of aging homeowners.

Lowe’s reported profit that beat expectations, though sales declined and fell just short of the FactSet consensus.

A challenge for the quarter was unseasonably cold and very wet weather, which delayed purchases for outdoor living, items like lawn mowers, grills and patio furniture. Three-quarters of Lowe’s business is the DIY (do it yourself ) customer, and for those shoppers, this merchandise is important, Ellison said.

This sort of hardlines merchandise were a challenge for other retailers, like Target Corp.
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+1.26%,
which reported a profit miss on Wednesday.

And unlike Walmart Inc.
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Ellison says he hasn’t seen any indications that customers are trading down.

Read: Target stock plunges as profit drops on consumer spending shifts and jump in freight costs

Also: Walmart says consumers are trading down to private label for items like dairy and bacon

“There are no signs that the consumer is trading down at this point,” he said. “The customer is still spending money on innovation.”

Sales are turning around in May, and Ellison is optimistic that the company can make up for the sales that were delayed by weather. And on the earnings call, Ellison was upbeat about the outlook for the home improvement segment despite volatility in the macroeconomic environment.

Still, Neil Saunders, managing director at GlobalData, was cautious, saying fewer households are taking on projects and there was a downward trend in DIY.

“This has come off a very elevated high from the past two years and is now returning to normal,” Saunders wrote.

“As much as it is unhelpful for all home improvement players, it is especially punishing for Lowe’s which disproportionally benefitted from newbie improvers and infrequent DIYers visiting its stores. It is these groups where the pullback on spending has been greatest.”

Ellison says that two-thirds of Lowe’s sales are for repair and maintenance activity, which is necessary to operate the home, rather than discretionary projects, providing some insulation.

Saunders also cites competition with Home Depot Inc.
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and inflation, which will make price more of an issue.

A quarter of Lowe’s business is in the professional category. Sales in that category grew 20% during the quarter.

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Home Depot reported a surprise fiscal first-quarter earnings beat on Tuesday.

“While Home Depot likely gained share, we believe it also shows the inherent strength of the category even two years after the onset of the pandemic,” wrote UBS in a Home Depot note.

UBS rates Home Depot buy with a $360 price target.

“Although positive macro factors persist for home improvement including tight home supply and rapid home price appreciation, and project backlogs amongst Pros remain healthy, we expect slowing demand in the face of inflation, higher interest rates and a gradual shift in spending towards services,” wrote Wedbush in a Home Depot note.

Wedbush rates Home Depot stock neutral with a $320 price target, down from $340.

D.A. Davidson sees positives for both home improvement retailers.

“Lowe’s is improving its penetration of online furniture, but Home Depot is taking share and is the leading Home Center provider in online home décor (although Lowe’s is also growing),” analysts said.

D.A. Davidson rates Home Depot neutral and Lowe’s buy.

Ellison acknowledged the inflation headwind on the call, but remained upbeat.

“[W]e’re aware that we have inflation concerns. We’re aware that there are rising interest rates. But as we look at the home improvement sector, we still remain very confident in the outlook and very confident in the sector,” he said, according to FactSet.

Lowe’s stock is down nearly 27.3% for the year to date. Home Depot shares have fallen 30.7% for the period.