What’s News in Earnings: Weak Housing Market Weighs on Home Depot and Lowe’s

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Veronica Dagher (0:33)

Hey, listeners. It's Thursday, August 20th. I'm Veronica Dagher, a personal finance reporter for The Wall Street Journal. This is What's News in Earnings. Our look at some of the biggest themes standing out this earnings season. America's housing market is basically stuck. Borrowing costs are high.

A lot of people who want to buy are still on the sidelines, and home sales are at a near standstill. That week, market is trickling down to the retailers that people rely on when they want to upgrade their homes before selling them. This week, Home Depot and Lowe's delivered their second quarter results. And it told us that many consumers are still holding back on big projects like renovations.

Joining me to break down what these results reveal about consumer spending and the retail landscape is WSJ reporter Sarah Nassauer. Sarah, thanks for coming on.

Sarah Nassauer (1:32)

Thanks for having me.

Veronica Dagher (1:34)

So when people aren't moving, they're not as willing to spend money on new kitchen cabinets. How much is the stagnant housing market dragging down revenue for these big box stores?

Sarah Nassauer (1:45)

It's been a huge challenge for these home improvement retailers that really had boom times during the pandemic, and now are dealing with this extended period of the stagnant housing market really eating into their ability to grow sales.

They both called out the stagnant housing market as something that continues to be a drag. At the end of the day, if people don't move houses, they don't sell houses, they're just not doing the same volume of projects.

Veronica Dagher (2:13)

Are we noticing a split in behavior between the casual weekend DIY or cutting back faster than contractors, for example?

Sarah Nassauer (2:21)

Yeah, they have what they call the pro business, which is anything from a contractor heading into a store to buy some last-minute supplies to fix something in someone's house, to huge renovation or build projects. They can try to grab more market share in the pro market, and so you see them doing that.

Whereas the DIY projects continue but are not huge projects, right? And so that is just a smaller chunk of the pie to go after.

Veronica Dagher (2:52)

Is Home Depot in better shape than Lowe's or are they about the same?

Sarah Nassauer (2:55)

You know, we've seen if you go back a few quarters, they're kind of about the same, but in the most recent quarter, Home Depot's sales, comparable sales figures were stronger than Lowe's. They do see people continuing to buy.

Veronica Dagher (3:09)

So forecasts indicate home remodeling spending will stay essentially flat into the next year. If that's the case, what are the other ways these stores can expect to drive revenue?

Sarah Nassauer (3:20)

So basically, they're trying everything else, right? Like they want, you know, yes, the DIY shopper.

Home Depot called out some strength in what they call single purchase items. So think like my dishwasher broke and I'm going to buy a new one. So that's not a low priced item, but it's not like I'm remodeling my whole kitchen for 70 grand, right? And so they said like they're seeing some strength there. That becomes the matter of, can they grab that shopper at the time that they need the thing with low prices, right? The selection. And then you see both Home Depot and those really focused on grabbing more of this pro business, this huge projects. They both made acquisitions in recent years of companies that allow them to be more of a direct player in like distribution of construction goods to big developers that would maybe be developing like 70 homes in a development, not just a contractor working on a home project here one after another.

Veronica Dagher (4:22)

That was WSJ reporter Sarah Nassauer. Thanks for joining me, Sarah.

Sarah Nassauer (4:27)

Thanks for having me.

Veronica Dagher (4:29)

And that was What's News in Earnings.

Today's show was produced by Pierre BnM.A. with supervising producer Tali Arbel. Later today, we'll have a PM edition of What's News out for you as usual. I'm Veronica Dagher. Have a good day.

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