Dive Brief:
- Lowe’s diversified its supply chain following tariffs imposed by the first Trump administration, but, with about 40% of its assortment still sourced from overseas, another round of levies would add costs, executives told analysts Tuesday.
- Executives addressed questions on the potential impact of import tariffs proposed by the president-elect, saying they would likely benefit from the supply chain diversification motivated by a round from Trump’s first administration, and the relationships built with suppliers since then.
- The 40% of Lowe’s assortment that still comes from abroad includes Lowe’s own merchandise as well as other brands. Stanley Black and Decker earlier this month said it has worked since the spring to mitigate possible new tariffs by shifting production away from China.
Dive Insight:
Economists have warned that tariffs on the scale touted by Trump would fuel inflation, with Bank of America economists led by Aditya Bhave estimating it “will likely get stuck above 2.5%.”
"We're preparing internally for what may be coming from the administration," Lowe’s CFO Brandon Sink said during a call with analysts, adding, "But you know, timing and details remain uncertain at this point."
Lowe’s reported that Q3 net sales fell 1.5% to $20.2 billion, with comps down 1.1%; online sales comps rose 6%. That strength in e-commerce, plus pro sales and sales related to hurricane-related projects, partly offset softness in do-it-yourself demand.
Gross margin was essentially flat at 33.7%, according to a company press release. Net earnings declined by 4.4% to $1.7 billion.
Home improvement sales have suffered as high interest rates undermined home sales of late. That hasn’t changed much despite recent rate cuts from the Federal Reserve, in part due to uncertainty about policies from a second Trump administration, according to Emarketer senior analyst Zak Stambor.
“Mortgage rates typically mirror 10-year Treasury yields, and bond investors fear that Trump's tariffs, worker deportations, and tax cuts will drive up federal deficits and lead to inflation,” he said in emailed comments. “Until mortgage rates fall, the home improvement industry will continue experiencing stiff headwinds."
Lowe’s on Tuesday revised its full-year outlook slightly upward, saying in its release that total sales would likely reach $83 billion to $83.5 billion, up from between $82.7 billion and $83.2 billion, and for comps to be down between 3% and 3.5%. However, that’s below the original outlook released early in the year, which the company lowered in August.
In Q3, Lowe’s managed to beat expectations, thanks in part to repairs needed in the aftermath of devastating storms earlier this year. Sink said that hurricanes Helene and Milton lifted comp sales in the period by about 100 basis points, and that small outdoor projects to alleviate “the impact of intense summer heat” also lifted DIY sales.
"Mother Nature provided an unexpected boost to Lowe’s Q3 results,” Stambor said.
