Earnings   //   May 22, 2024

How Home Depot & Lowe’s plan to navigate DIY drop-off

At their most recent earnings, both Home Depot and Lowe’s reported drops in year-over-year sales as shoppers pulled back on home improvement spending. In turn, the home improvement chains are looking to drive business with professional contractors and find new ways to cater to online customers to ride out a challenging macroeconomic environment.

Lowe’s reported its first-quarter sales of $21.4 billion on Tuesday, down 4.1% from the same time last year. Still, it beat expectations and is forecasting the year’s sales will be about 2% to 3% less than 2023. It’s a similar story at Home Depot, which last week reported sales of $36.4 billion, representing a drop of 2.3% year over year.

Both chains saw decreases in foot traffic, and are pointing to softness in the market for larger-ticket purchases. DIY spending is down following a pull-forward of renovations that occurred during the Covid-19 pandemic. And high interest rates are keeping home sales slow, which impacts renovations and repair spending.

“Real wage growth and home price appreciation are solid, but the home improvement customer is still on the sidelines, expressing concerns about higher cost of living and the state of the overall economy,” said Lowe’s CEO and chairman Marvin Ellison during Tuesday’s earnings call.

To offset this dampening demand, both Home Depot and Lowe’s are laying out plans to improve their offerings for professional contracts, which they see as faster-growing segments. Additionally, both saw slight gains in online sales — Lowe’s reported a 1% bump in online sales and Home Depot reported 3.3% compared to the prior year. That includes orders fulfilled through stores.

Ellison said the company aims to cater to small and mid-sized contractors and tradespeople with services like delivery to the job site and opening up supply branches. “There is still significant runway ahead of us to grow ourselves with these customers while also leveraging our retail footprint to drive profitability,” Ellison said.

Ted Decker, CEO at The Home Depot, said the company sees potential growth opportunities with residential professional contractors who shop many categories for complex projects — a total addressable marketing Decker estimated to be about $250 billion. But catering to that group will require more fulfillment options and order management capabilities that the company has to develop, which Decker calls the “Pro Ecosystem.” The Home Depot plans to bolster these offerings with a potential acquisition of SRS, a trade distributor that makes products for roofers, pool contractors and landscapers. He said this new service system will be in 17 markets by the end of the year.

“Driving sales growth with Pro customers remains one of our top focus areas,” Decker said.

Both companies have been pointing to professional contractors as a growth area for the past several years. But it necessarily insulated them from the broader challenges posed by the housing market. Home Depot’s evp of merchandising, Bill Bastek, said on last week’s earnings call that pro and DIY performance was relatively in line with each other, but both negative for the quarter.

Lowe’s did report positive comparable sales for its pro sales this quarter. But Ellison said there is much room to grow in a highly fragmented market. “We’re striving to provide a high level of service with the small- to medium-sized pros as we continue to build trust and credibility,” he said.

Amanda Wyatt, a contractor and founder of DIY training platform Design Insider, said she still is seeing and hearing about a significant amount of real estate and renovation activity in second home markets. But even when contractors are busy, they are dealing with associated headwinds like fluctuation in prices, increased labor costs and material availability. Because of these issues, budgets aren’t going as far as they used to, and some homeowners may scale down the project they are looking to do.

“If we were building three years ago, we were at $500 a square foot, now we’re at $800 a square foot,” she said.

For the more general customer, both Home Depot and Lowe’s are looking at how to drive online sales. At Home Depot, efforts include improving online search functionality and filtering capabilities so shoppers can find what they are looking for faster. At Lowe’s, Ellison said Tuesday that improvements in online conversions are helping to offset the softness of bigger ticket items, thanks in part to partnerships with DoorDash and Shipt. The website is also starting to integrate more virtual reality features so shoppers can visualize what products may look like in their homes.

Additionally, Lowe’s also rolled out its MyLowe’s Rewards program nationwide this quarter, which includes free standard shopping and a points-based rewards system. Ellison didn’t share figures on how many people have signed up so far but said the launch has been successful in person and online.

Overall, he said, Lowe’s is investing billions into the company during this time and is focused what it can do to drive growth in the long term.

“I think Q1 reflects that we’re executing at a high level, in spite of some of the macro headwind that we’re dealing with,” Ellison. “But we’re really positioning ourselves to really come out of this downturn as a much better company.

Data from Placer.ai shows that in-person visits were down in the first quarter for both Home Depot and Lowe’s, 1.1% and 4% respectively. R.J. Hottovy, head of analytical research at Placer.ai, said the last several quarters have been tough for home improvement retailers. “Some of that is to be expected with low housing turnover,” he said.

However, Hottovy said, there may be a rebound in the future as the housing market changes. While some sectors have fundamentally changed from before the pandemic, home improvement is one that has normalized and will continue to, Hottovy said.

“We’ve seen a lot of household formation from Gen Z and younger groups. There are a lot more people working from home, and that leads to more wear and tear. We see a lot of people moving away from urban settings and into smaller markets,” he said.

That bodes well for the home improvement sector overall. Mike Taylor, a practice lead at consumer intelligence firm J.D. Power, recently researched the home improvement category and found significant levels of trust in major brands. “This is mostly a macro thing happening to them right now,” he said.