Lowe’s Sees Steady Second Half as Cautious Homeowners Favor Smaller Projects

Key Points

• Lowe’s expects a steady second half as elevated interest rates and economic uncertainty keep homeowners cautious, with smaller projects replacing some full kitchen and bathroom renovations. The company still aims to grow market share despite the challenging housing backdrop.
• Digital sales increased more than 15% in each of the past two quarters, supported by store-based fulfillment, same- or next-day delivery, marketplace expansion and the Mylow AI tool, which Lowe’s says has improved customer conversion and satisfaction.
• Acquisitions of ADG and FBM are expanding Lowe’s construction and “interior solutions” business, including exposure to commercial projects and data centers. The company plans to prioritize debt reduction toward a 2.75-times leverage ratio before potentially resuming share repurchases.

Lowe's Companies NYSE: LOW expects the second half of the year to resemble the first half as elevated interest rates and broader uncertainty continue to affect home-improvement spending, Chairman, President and Chief Executive Officer Marvin Ellison said at the Goldman Sachs Global Consumer and Retail Conference.

Ellison said the company does not expect a material change in the housing backdrop during the balance of the year, but said Lowe's believes it can grow and gain market share regardless of macroeconomic conditions. He pointed to five consecutive quarters of positive comparable sales growth and digital sales growth exceeding 15% in each of the past two quarters.

More than 60% of Lowe's sales are driven by do-it-yourself customers, Ellison said. While the company's core homeowner customer has an average household income above $100,000 and roughly $400,000 in equity, those consumers have become more cautious about larger discretionary purchases amid higher interest rates and geopolitical uncertainty.

Smaller Projects Replace Some Major Renovations

Ellison said homeowners are pursuing smaller, more deliberate projects rather than undertaking full kitchen or bathroom renovations at the same frequency seen before the current housing cycle. Customers may buy countertops or cabinets instead of completing an entire kitchen remodel, he said.

Lowe's has invested in in-store kitchen, bath, appliance and flooring showrooms under its Total Home Strategy, Ellison said. He added that small- and medium-sized professional customers have remained resilient by adapting their work to consumers' budgets and project scopes.

The company sees a broad competitive landscape beyond its largest rival, according to Ellison. Lowe's estimates the home-improvement market at roughly $1 trillion, while Lowe's and its largest competitor together account for about $250 billion of that market. He said smaller regional players represent another opportunity for Lowe's to gain share.

Appliances have been a particular source of share gains, Ellison said. He said Lowe's is the only U.S. retailer capable of delivering and installing major appliances on the same day or next day in virtually every U.S. ZIP code. That capability is particularly important in “duress” purchases, such as when a refrigerator breaks and requires immediate replacement.

Pricing, Delivery and Digital Investment

Ellison described the promotional environment in the second quarter as one of the most active he has seen in 25 years in home improvement, attributing it in part to companies receiving tariff refunds and using them to provide value to consumers. He characterized that activity as transitory and said Lowe's does not view it as a new normal for the category.

For the second half, he said Lowe's expects its pricing to be “virtually the same” as in the first half. The company plans to remain focused on value without becoming overly promotional, while using separate loyalty programs for DIY and professional customers to offer more targeted member promotions.

Lowe's has also invested in pricing technology after relying on manual spreadsheets when Ellison joined the company in 2018, he said. The retailer now has more sophisticated pricing systems and processes, according to Ellison.

The company’s approximately 1,750 U.S. stores serve as both shopping destinations and fulfillment nodes. Between 60% and 80% of online order fulfillment comes from stores, depending on product category and season, Ellison said. Lowe's is also extending its big-and-bulky delivery network beyond appliances to categories such as riding lawnmowers, grills and patio furniture.

Digital sales rose more than 15% for two straight quarters, supported by improved fulfillment, same-day delivery and the company’s digital marketplace, Ellison said. He said the marketplace allows Lowe's to offer products serving value-oriented and luxury customers without owning the inventory.

Ellison also highlighted Lowe's Mylow artificial intelligence tool. Customers and associates have submitted more than 25 million questions through the tool, he said. Customers using the AI assistant have conversion rates three times higher than those who do not use it, while associates using it have contributed to a 200-basis-point improvement in customer satisfaction, according to Ellison.

Acquisitions Target Construction Opportunity

Ellison said Lowe's acquisitions of ADG and FBM expanded the company into construction-related markets where it previously had little exposure, particularly single-family and multifamily construction. ADG focuses primarily on flooring, countertops and cabinets, while FBM focuses on drywall, ceiling systems and insulation.

Combined with Lowe's appliance, faucet and fixture offerings, the businesses create what Ellison called an “interior solutions platform” for builders. Lowe's is already conducting pilots designed to offer builders a broader collection of interior products and potentially help reduce construction and closing times, he said.

Ellison acknowledged that elevated mortgage rates have pressured residential construction. However, he said about 55% of FBM revenue comes from commercial construction, including data centers, sports venues, hotels and university projects. Data-center build-outs are currently one of FBM’s largest segments, he said.

Looking ahead, Lowe's plans to remain opportunistic about tuck-in acquisitions that complement its interior-solutions strategy, Ellison said. The company also plans to prioritize debt reduction toward a 2.75-times leverage ratio, which he said it expects to reach around the midpoint of next year, while continuing dividend payments and potentially revisiting share repurchases after reaching that leverage target.

About Lowe's Companies (NYSE:LOW)

Lowe's Companies, Inc is a home improvement retailer that serves homeowners, renters, and professional contractors primarily through stores and digital platforms in the United States. The company sells a broad selection of products for maintenance, repair, remodeling, and construction projects.

Its merchandise includes appliances, tools, hardware, lumber, building materials, plumbing and electrical supplies, paint, flooring, lighting, kitchen and bathroom products, outdoor living items, lawn and garden products, and seasonal goods.

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