Home-Improvement Chains’ Earnings Could Show How Affluent Americans Are Spending

Are affluent Americans still spending? Two big home improvement retailers could offer clues about that later this week.

Homeowners renovating kitchens and retiling bathrooms have long been crucial parts of the business at Home Depot (HD) and Lowe’s (LOW). These customers have the means to fund large projects—but, in recent years, have been trying to wait out high interest rates, Home Depot CEO Edward “Ted” Decker said in April. This spring, he said, some changed their minds, deciding interest rates are likely to remain elevated, and waiting was unlikely to reduce the cost of borrowing.

We may get a better sense of how their thinking has evolved on Tuesday, when Home Depot is slated to release its second-quarter results, and Wednesday, when Lowe’s is scheduled to post its numbers.

The updates come as economists speculate that the central bank may lower interest rates in September.

Home Depot, Lowe’s Same-Store Sales Fell Earlier This Year

Higher prices and surges in inflation are unlikely to destabilize Home Depot’s core customer: homeowners who earn an average of $110,000 annually, Decker said while discussing the company’s first-quarter results on a conference call in May.

“Our customer, from a broad basis, is one of the strongest in the economy,” he said, according to a transcript made available by AlphaSense. “We’ve talked about how much home price appreciation they’ve seen over the past year. Stock markets have recovered, job and wage growth are strong.”

Higher interest rates “created a deferral mindset,” CFO Richard McPhail said in April. That’s led to an estimated $50 billion drop-off in home improvement spending in recent years, according to comments from both companies’ leaders.

There are signs that those deferrals may continue. Just over a quarter of Americans surveyed in August said they expect to spend more on home improvement in the coming three months, down from more than 30% a year earlier, according to Bank of America research.

Wall Street Sees Both Companies Reporting Sales, Earnings Growth

Home Depot and Lowe’s each reported year-over-year declines in comparable store sales in the first quarter, though the former said “big-ticket” transactions worth $1,000 or more rose 0.3%. Appliance sales were brisk, but purchases for remodeling jobs—the type that may require financing or borrowing against one’s home equity—remained soft, executives said.

Foot traffic fell year-over-year at both chains during the second quarter, but improved over the course of the period, according to Placer.ai, a visit-tracking group. Analysts think both companies will report a 1.1% year-over-year increase in comparable store sales, according to consensus estimates from Visible Alpha.

Analysts estimate Home Depot will report $45.3 billion in sales, up from the $43.2 billion brought in the same quarter last year, according to Visible Alpha. They’re looking for $6.8 billion in adjusted earnings—a bit more than the $6.6 billion reported last year.

Lowe’s is forecast to report $24 billion in sales, a tick above the $23.6 billion reported last year, according to Visible Alpha. Wall Street is anticipating $3.5 billion in adjusted earnings, compared with the $3.4 billion reported a year earlier.