Lowe's warns of dull 2023 sales as home improvement market likely to shrink

By Deborah Mary Sophia

(Reuters) - Lowe's Cos Inc forecast annual sales below market expectations on Wednesday and warned of a slight decline in the home improvement market this year due to rising prices and borrowing costs.

Shares fell 5% after the company missed quarterly sales expectations due to fewer transactions.

A pandemic-fueled boom in demand for home improvement products such as flooring and gardening tools is now fading as household budgets shrink, while Americans redirect their attention back to activities such as traveling.

"In 2023, residential investment will be under some pressure," Lowe's finance chief Brandon Sink told investors on a call, echoing larger rival Home Depot Inc, which had last week warned of a moderation in demand.

"With Home Depot helping lay the groundwork a week ago, really nothing too surprising here," Telsey Advisory Group analyst Joe Feldman said.

WAGES UP, BUT ROOM FOR MARGIN GROWTH

A tight U.S. labor market has prompted retailers to raise wages for their employees, with both Lowe's and Home Depot investing more in workers' pay and benefits.

Lowe's said it has awarded $220 million in bonuses to its employees in the fourth quarter, adding that workers would receive $7,500 bonus on top of their annual incentive bonuses.

It is also planning to invest $350 million more in wages for its frontline associates this year.

Still, Lowe's expects operating margin of 13.6% to 13.8% this year, up from the 13% in 2022. It also forecast annual earnings in the range of $13.60 to $14.00 per share, the midpoint of which was slightly ahead of an estimate of $13.79.

The company projected annual sales of $88 billion to $90 billion, below Refinitiv estimates of $90.48 billion.

(Reporting by Deborah Sophia in Bengaluru; Editing by Arun Koyyur)