RETAIL ALERT | Depot and Lowe’s: Their outlook for the home improvement industry

Home Depot and Lowe’s recently released their Q4 and fiscal year earnings, and both companies painted a positive view of the home improvement industry for 2023 and beyond.

By the numbers:

Both companies saw year-over-year declines in transactions that were offset by higher inflation-driven prices.

• Transactions were down at both Depot (-5.3%) and Lowe’s (-7.4%).
• The average ticket increased at Depot (+8.8%) and Lowe’s (+7.0%).

Looking ahead, Depot is “bullish” on the industry, pointing out the following:

• More than 90% of U.S. homeowners either own their homes outright or have fixed-rate mortgages under 5%.
• More than half of homes in the U.S. are over 40 years old.
• Depot’s guidance for 2023 calls for flat total and comp sales, with transactions down in the low single digits.

Lowe’s sees ‘tailwinds’ for their business based on the following trends:

• Strong millennial household formation, baby boomers' increasing preference to age in place, and widespread remote work.
• The company sees the slowdown in housing turnover as being driven by higher rates and low supply rather than demand.
• Lowe’s is projecting comp sales to be flat to down -0.2% in 2023.

The big picture:

Both companies believe these conditions will continue to drive consumers to trade up in place and upgrade their existing homes to meet their evolving needs.

What we're watching:

Millennials are increasing their debt at a historic pace, which may delay their ability to take on larger home improvement or repair projects.

• Total debt balances among Millennials were more than $3.8 trillion in the fourth quarter.
• Their 27% jump in total debt over the past 3 years is the fastest pace of debt accumulation since the 2008 financial crisis.