What happened
Shares of Lowe's Companies (LOW -1.40%) were down by almost 5% as of midday Tuesday. If Home Depot (HD -1.77%) catches a cold, it's likely that Lowe's will sneeze. That's pretty much how investors look at matters, and for good reason.
Unfortunately, Home Depot does have a cold right now -- or rather, it's feeling the chill of slowing consumer spending on discretionary purchases, and in particular, weakness in home improvement spending. Naturally, Lowe's won't be immune from such an environment.
Home Depot reported its fourth-quarter results Tuesday morning, and comparable sales declined by 0.3% both globally and in the U.S. Moreover, management's guidance for flat comparable sales in 2023 left investors disappointed.
So what
It's always a good idea to dig into which categories the home improvement stores are seeing relative strength and weakness in, and Home Depot reported softness in laundry, soft flooring, and roofing. Given that spending in the latter category tends to be strongly associated with housing turnover, it's clear that a slowing housing market is behind the company's weak sales outlook.
Meanwhile, "building materials, plumbing, millwork, hardware, tools, outdoor garden, and paint had comps above the company average," Executive Vice President Jeff Kinnaird said on the earnings call. Kinnaird also noted that "pro sales growth outpaced DIY," but this is likely due to professionals working through their backlogs, so don't be surprised if sales to professionals slow in the future.
Now what
Investors will have to wait until March 1 to see Lowe's fourth-quarter earnings report. Given that expectations for the period have now been reset due to Home Depot's report, some potential bad news will probably be priced into the stock before Lowe's reports -- which is something for investors to consider.
