Lowe's Lowers Outlook As Gloom Of Housing Market Deepens

by Sarah Mahoney, Aug 21, 2007, 5:00 AM

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Lowe's became the latest retailer to lower its outlook because of the slumping housing market. And the lingering real-estate gloom, which has stores like Wal-Mart, Home Depot and Sears licking their wounds, has got marketing experts wondering--when will American consumers start feeling safe enough to feather their nests again?

While Lowe's sales gained 5.8% to $14.2 billion in the quarter, its comparable store sales declined 2.6%, and they fell 4.4% in the first half. "The sales environment remains challenging as home improvement consumers hesitate to take on longer discretionary projects," company execs said in a conference call, causing the company to lower its forecast for the remainder of the year.

It's not that homeowners are hanging up their paint-rollers and weed whackers. "Consumers are making sure they keep their homes as functional as possible," says Nick McCoy, a senior consultant at TNS Retail Forward, in Columbus, Ohio. "So they're still doing smaller spruce-up jobs. But they are very reluctant to undertake the major projects that they might have done in anticipation of selling."

In its conference call, Lowe's says it has seen a "profoundly disproportionate impact in those markets where housing was most stretched during the past several years," with its California operating regions posting double-digit negative comps for the quarter. "Our expectation is that we will continue to experience negative comps in that market through the end of the year," it says, adding that there is some sign of improvement in markets in the Northeast. "It's probably a little early to say housing pressures in the Northeast are behind us, but our improving results are an encouraging sign."

The company also says it saw positive results in some categories, illustrating that consumers are still trying to follow conventional real-estate wisdom.

"As a core part of the maintenance of the exterior of the home, consumers continued to purchase live plants to enhance the appearance and enjoyment of their yards," it says. Paint sales--particularly exterior paint and stain--were also strong. Patio furniture and gas grills also did well.

Eventually, McCoy thinks that even if the housing downturn continues, consumers might eventually feel stuck enough in their current homes to start spending again, whether it's splashing aubergine paint on dining room walls or adding the three-season room they've always wanted. But not now.

"Most people are just waiting it out," says McCoy. "And it's not just real estate. People are nervous about the economy--about gas prices, about interest rates, about all the press on the subprime mortgage meltdown. So for now, they're just sitting still."

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