Lowe's CEO: A New Renovation Era Begins

Lowe's CEO Expects Increase in Home Renovations

Lowe's CEO Marvin Ellison expects homeowners to focus on home renovations instead of purchasing new homes due to high mortgage interest rates. Wall Street received this message positively, and the company's shares gained nearly 6% during the day.

Ellison stated that Americans have an average of about $400,000 in significant equity in each home, which he noted is a good formula for renovations. He mentioned that homeowners will start using this equity to finance larger and more elective home improvement projects. He also discussed that they won't be able to let go of fixed 30-year mortgage rates below 4% and 3%.

According to data released by Freddie Mac last week, the average 30-year fixed mortgage rate rose by two basis points to 6.24%. While Ellison emphasized that homeowners appreciate the current low mortgage rates, he pointed out that they are not satisfied with their kitchens, additional garages, and modern living spaces. Additionally, the average age of homes in the U.S. has risen to 44 years.

Ellison believes that Lowe's is prepared for the increasing demand. In the third quarter, the company reported better-than-expected results in both the top and bottom lines, raising its annual sales forecast. However, the increase in same-store sales was only 0.4%, which falls slightly short of the street consensus estimate of 1.02%, according to Bloomberg data. Despite Home Depot painting a gloomy picture for the industry, Wall Street remains optimistic about the results.

Home Depot CEO Ted Decker stated that the core demand in the business has remained close together, but the anticipated demand increase in the third quarter did not materialize. Ellison, however, expressed that Lowe's has achieved double-digit growth in home installation jobs, such as kitchens, bathrooms, HVAC systems, water heaters, windows, and doors. "We are managing this big ticket business well, but not because the market has dramatically recovered; we are gaining market share," he stated.

Bank of America analyst Robert Ohmes noted in a message to clients that he believes Lowe's profitability will increase, and that the margin gap with Home Depot will continue to narrow as traction is gained in the professional customer segment.