Hate Thy Neighbor

Image source: FREEPIK2 on Shutterstock

What's going on?

Lowe’s posted better-than-expected earnings on Wednesday, as homeowners turned to the DIY retailer to give them bragging rights over the family next door.

What does this mean?

Investors were worried that Americans would find better things to spend their money on than DIY after lockdowns, but homeowners haven’t parked their aesthetic aspirations just yet. Builders and handymen are still working their way through a backlog of delayed projects, which might be why Lowe’s sales to professional customers – which represent a quarter of the company’s revenue – were 23% higher last quarter than they were at the same time in 2020. That helped boost overall sales in Lowe’s existing stores by a better-than-expected 5%. And since there are plenty more tiles that need to be grouted, Lowe’s upped its 2022 sales and profit forecasts too.

Why should I care?

For markets: It’s a game of tight margins.
Lowe’s investors were right to be wary: rival Home Depot said on Tuesday that its profit margin shrank last quarter, and that it would probably take another hit later this year. Its stock fell 9% following the admission, which stands to reason: investors have been anxious about what higher costs would do to companies’ profit margins this earnings season. Lowe’s prediction that its profit margin will be higher this year than last, then, came as a huge relief, and investors sent its shares up 4%.

The bigger picture: US homes are fixer-uppers.
Thing is, there are a couple of trends that would probably be benefiting Lowe’s with or without the pandemic. For one thing, almost half of all single-family homes in the US were built before 1980, which means the crumbling abodes need a lot more attention than they used to. And for another, there are fewer and fewer homes available to buy, which is encouraging homeowners to spruce up the places they have no choice but to stick with.

Originally posted as part of the Finimize daily email.

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