Lowe's Earnings: Investors Look For Clues Amid Recession Fears

Lowe’s Companies Inc LOW, a major player in the home improvement industry, is set to report its first quarter earnings on Tuesday before the opening bell. With earnings expectations of $3.40 per share on revenues of $21.6 billion, investors are anticipating what these figures might suggest about the broader economic picture.

Notably, Lowe’s industry peer, Home Depot Inc HD, issued a mixed earnings report last week. Despite EPS marginally exceeding expectations, revenue fell short, triggering caution among investors. More unsettling, however, was Home Depot slashing its outlook due to harsher weather and plummeting lumber prices.

The earnings reports of both Lowe’s and Home Depot are traditionally viewed as a gauge for the overall health of the economy. Consequently, some analysts suggest that Home Depot’s recent performance could foreshadow trends in the broader retail economy.

Given that the odds of a recession in 2023 stand at 64% amid bank failures and higher rates, coupled with forecasts of rising unemployment and significant job losses over the next year, these earnings reports take on heightened significance.

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Home Depot’s situation caught the attention of analysts and investors alike, with a recent MarketWatch story suggesting that the fallout may not be limited to home improvement chains.

Edward Moya, senior market analyst at OANDA, highlighted a potential ripple effect, telling MarketWatch, “The housing market boomed and then crashed and what is happening with Home Depot could be a warning of what will come to the broader retail space.” Moya suggested that vacations are now prioritized over home-makeover projects, which could also lead to other major U.S. retailers downgrading forecasts.

Louis Navellier, chief investment officer at Navellier Calculated Investing, posited that Home Depot’s situation signals a decline in discretionary consumer spending.

The volatile trajectory of lumber prices, which positively impact Home Depot’s sales when high, fluctuated drastically during the pandemic due to a homebuying and home-renovation surge that clashed with supply constraints at sawmills. However, the bubble later burst as interest rates rose, and the return to pre-pandemic life routines resumed.

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