Lowe's cuts annual forecasts as home improvement demand falters

By Deborah Mary Sophia

(Reuters) -Lowe's Cos Inc cut its annual sales and profit forecasts on Tuesday, joining larger rival Home Depot in highlighting waning demand for home improvement tools with sticky inflation forcing consumers to cut back on discretionary spending.

Still, shares reversed premarket losses and were up 2% in morning trading. Analysts said the results were not as bad as feared after Home Depot's gloomy outlook last week.

A shift in spending to services, falling lumber prices and a damp start to the Spring season also squeezed sales against the backdrop of inflation-wary consumers pausing larger projects and scouting for cheaper options even for small-scale renovations.

Some customers are ditching preferred brands for more affordable labels while others were picking substitutes of lower quality or moving to cheaper countertops, said Bill Darcy, CEO of trade group National Kitchen & Bath Association.

Lowe's forecast cut was smaller than Home Depot's that had knocked shares of both companies, but analysts warned Lowe's could trim its outlook again this year.

"The question is - here we are, sitting in the first quarter, and is that truly a bottom or is it a matter of whether this is the beginning of more cuts," said Truist Securities analyst Scot Ciccarelli.

Lowe's expects full-year comparable sales to fall between 2% and 4%, compared to its prior outlook of flat to down 2%. In comparison, Home Depot slashed its same-store sales forecast to a 2% to 5% fall from nearly flat sales.

OUTPERFORMANCE

While Lowe's reported a steeper-than-expected fall in first-quarter comparable sales, it topped profit expectations, with D.A. Davidson analyst Michael Baker saying margins were also holding up better thanks to tighter cost control.

"It's not quite as bad as some had expected," Baker said, adding Lowe's U.S. same-store sales were slightly better than Home Depot's, marking its first quarter of outperformance since the fourth quarter of 2020.

While demand from Lowe's core do-it-yourself customers came in weaker than anticipated, strength in sales to its "Pro-customers" helped offset some of that, Chief Financial Officer Brandon Sink said.

(Reporting by Deborah Sophia in Bengaluru; Editing by Sriraj Kalluvila)

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