Dive Brief:
- After almost two years of growth, Lowe's on Wednesday said demand in the home improvement sector may decline in the year ahead.
- For 2022, the retailer expects total sales to be between $94 billion and $97 billion, while it projects same-store sales to decline 3% or be flat, according to a company press release.
- Gross margin is expected to be flat year over year and operating margin is projected to be between 12.5% and 12.8%.
Dive Insight:
Lowe's, like other home improvement retailers, experienced a boost at the onset of the pandemic as consumers took on more home-related projects to accommodate their "new normals," which included schooling and working remotely for many.
In 2020, Lowe's reported net sales grew 24.2% to $89.6 billion, while net income increased 36% to $5.8 billion. And throughout 2021, the retailer has been able to lap 2020 figures, when demand skyrocketed. In its most recent quarter, Lowe's reported net sales increased 2.7% year over year to $22.9 billion, while comps increased 2.2% from last year and 33.7% from 2019.
But while the retailer reaffirmed its guidance for 2021 — projecting net sales to reach $95 billion, representing a 33% comp increase from 2019 — it's outlook for the year ahead is less rosy.
"Looking ahead to 2022, the home improvement sector is likely to contract modestly given that the industry benefited from both higher inflation and government stimulus this year," Chief Financial Officer Dave Denton said during a meeting with investors Wednesday. "While it still remains difficult to predict the market performance precisely, we are expecting a demand decline of mid-single digits on a mix-adjusted basis."
Despite cooling demand, executives remained confident that consumers will continue to spend in certain areas of the home, and that initiatives Lowe's has put in place will benefit the retailer's long-term growth.
CEO Marvin Ellison believes that the continuation of pandemic-induced trends, like remote work for many, will create a "permanent step-up in repair and maintenance cycle" of products. Ellison added that repair and maintenance activity account for around two-thirds of Lowe's annual sales.
The retailer has introduced a number of initiatives in an attempt to grab market share among both its DIY and professional customers.
To attract millennial consumers, Lowe's has launched a new private label, Origin 21, which features modern decor. But Lowe's is looking to bring in customers across generations: The retailer earlier this year collaborated with AARP for Lowe's Livable Home, which offers services and expertise to older individuals looking to modify their homes.
But capturing share among the Pro customer base will be critical in the year ahead. Lowe's this past year has elevated its product assortment, rearranged its stores and launched a loyalty program, among other things, all geared toward attracting more professional customers.
