Lowe’s Cos Inc (LOW.N) raised its annual profit forecast on Wednesday, betting on record consumer savings and rising mortgage rates to fuel home improvement trends even as the housing market cools from a pandemic-led boom.
Shares of the North Carolina-based home improvement chain rose nearly 5% after it also topped estimates for third-quarter results and said it had not seen an impact on sales even in markets where home prices have declined.
Higher mortgage rates are keeping consumers from buying new homes and instead renovating their existing properties, buoying demand for home improvement projects.
Lowe’s optimism comes in contrast with comments from larger rival Home Depot Inc (HD.N) which on Tuesday left its annual forecasts unchanged despite beating quarterly estimates, citing caution over “mixed signals” around demand.
In fact, Lowe’s said its customers were trading up and investing more in flooring, appliances and kitchens.
“Consumer savings are near record highs, while disposable personal income remained strong … and this is why we’re so confident (about the industry outlook) even in a period of high inflation and rising interest rates,” Chief Executive Marvin Ellison said.
Analysts said Lowe’s, which earlier this year named insider Brandon Sink its new finance chief, showed real progress in its third-quarter results, after two quarters of decline in its comparable sales.
Lowe’s comparable sales grew 2.2% in the third quarter, beating analysts’ forecast of a 0.9% rise, driven by strong demand from professional customers and improving demand from its core do-it-yourself customer base.
“In a more difficult operating environment, we think that Lowe’s results show the operational improvements that the company has made under the new management team,” D.A. Davidson analyst Michael Baker said.
The company forecast full-year adjusted earnings of $13.65 to $13.80 per share, compared with the prior estimate of $13.10 to $13.60.