When the biggest player in your industry stumbles, everyone watches to see if you'll trip too. That's exactly what's happening with Lowe's Companies, Inc. (LOW) after Home Depot, Inc. (HD) delivered disappointing third-quarter results and slashed its profit forecast.
The Home Depot Disappointment
Home Depot reported earnings Tuesday morning that fell short of Wall Street's hopes. The company posted earnings of $3.74 per share, missing the $3.85 analyst consensus. Revenue came in slightly better at $41.352 billion, topping the $41.137 billion estimate, but that small win wasn't enough to offset the profit miss.
The real concern came with revised guidance. Home Depot lowered its full-year adjusted earnings-per-share outlook from $14.94 to $14.48, landing below the market's $14.99 expectation. The company did bump up its sales guidance from $163.98 billion to $164.299 billion, though that still trails the $164.742 billion estimate.
Home Depot CEO Ted Decker pointed to some unusual culprits. "Our results missed our expectations primarily due to the lack of storms in the third quarter, which resulted in greater than expected pressure in certain categories," Decker explained. Turns out, a quiet hurricane season means fewer emergency repairs and replacement purchases.
But it's not just about the weather. "Additionally, while underlying demand in the business remained relatively stable sequentially, an expected increase in demand in the third quarter did not materialize," Decker added. "We believe that consumer uncertainty and continued pressure in housing are disproportionately impacting home improvement demand."
The Lowe's Connection
Here's why Lowe's investors are nervous: both companies operate in the same home improvement specialty retail space, with Lowe's ranking as the world's second-largest player behind Home Depot. When the market leader signals trouble, it's reasonable to expect similar headwinds for the runner-up.
Lowe's is scheduled to report its earnings Wednesday morning, with analysts expecting earnings per share of $2.96. The market will be watching closely to see if Lowe's echoes Home Depot's concerns about consumer uncertainty and housing market pressure.
At the time of publication, Lowe's shares were down 1.40% to $221.91, while Home Depot had fallen 3.92% to $344.01.
