Lowe’s Profit Tops Estimates on Online Growth

0:00Donald Trump is rewriting the Washington rulebook and reshaping the global economy. If you're trying to connect the dots behind the headlines, Bloomberg's Trumponomics podcast is here to help. I'm Stephanie Flanders, head of government and economics at Bloomberg. Every week, I'll bring you a smart, focused conversation with reporters and experts from Washington, Wall Street and beyond. Listen to new episodes every Wednesday and follow Trumponomics wherever you listen. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy.

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1:14All investing is subject to risk, Vanguard Marketing Corporation Distributor.

1:20Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's bring in Drew Redding, Bloomberg Intelligence U.S. home building analyst, to give us a recap of what we need to know about Lowe's results. Drew, good to speak with you. What is what does Lowe's look like when it comes to its results compared with its big arrival, Home Depot? though? Yeah, so I think Lowe's results could be best characterized as better than feared, particularly in light of what we heard from Home Depot yesterday.

2:07They did fall short of consensus estimates on same-store sales, but I think the buy side was probably looking for something flat to lower, so a little bit better than they were looking for. Now, that being said, they did trim their four-year outlook. Now they're looking for four-year comp sales to be flat from flat to up 1%. So that would imply that 4Q is relatively flat. But similar to what we heard from Home Depot, they had about 100 basis point impact from hurricane activity that was not replicated this year. So again, if you were to back that out, it looks like the underlying trends in the business are pretty stable.

2:43That being said, they're still grappling with the same consumer uncertainty and the same weak housing market that their competitor is. So still challenges out there in the market. Drew, I think I understand it correctly that Lowe's has a lower percentage of sales to professional contractors than does Home Depot. If so, are they trying to narrow the gap? Are they targeting that segment a little more? Yeah, great question. So Lowe's is about 30 % professional contractors, 70 % DIY. Home Depot is about 50-50, maybe even a little bit higher on the pro front. What's interesting, and to your point on investment, is the pro space, especially in building products distribution, has really become a battleground among home improvement retailers.

3:28You had Home Depot recently do acquisitions for SRS and GMS, and then you have Lowe's who recently acquired foundation building materials. So it's certainly an area where they're making a concerted effort to grow. Now, Lowe's has historically focused on the small and medium-sized pro. And what this acquisition does is it gives them exposure to larger pros who do more complex projects. So they're able to be the supplier of choice across more building product categories and at a larger scale. So basically directly competing with Home Depot in many ways. Is this going to become a duopoly or are there still a lot of other places that professional contractors can go to?

4:15Yeah, so the building products distribution space is still very highly fragmented. You know, I wouldn't be surprised to see further consolidation within the industry, you know, across different categories. Home Depot and Lowe's are certainly, you know, two of the behemoths in the industry who have, you know, the scale and financial flexibility to further consolidate the industry. But there's some other players as well, like QXO. So it is a fragmented industry, but I would expect, you know, in the coming years, it's something that continues to get consolidated. Drew, I'm probably like a lot of investors out there.

4:50I can't keep track of where all the tariffs are these days, all the different products. But I'm just guessing if I'm a Lowe's or Home Depot, my plywood from Canada, that's probably being tariffed. A power tool from somewhere in Asia, that's probably subject to tariffs. How are these companies dealing with it? What have they been telling you guys? Yeah, good question. So Lowe's gets about 60 % of its products from the U.S. So their exposure internationally is maybe not as high as you would expect. China is probably around 15 to 20%. You know, there hasn't been a whole lot of talk. I think we have seen their average ticket increase this quarter was up about 3%.

5:27And part of that is in response to tariff related price increases. Lowe's told us that they were only modest increases. And, you know, they'll take a portfolio approach to how they increase prices. They'll look at their product lineup and see where they have more elasticity. But I think the impact of cost will start to come in a little greater as we look into Q4 in early 2026. And, you know, some of the areas that we're looking at, you mentioned plywood. So lumber tariffs from Canada. We also had the implementation of tariffs on cabinetry, both kitchen and bath, which could go up to 50 percent in January.

6:02So I do think that the impact gets a little greater as we look at the next year. So I would expect further price increases from both retailers. Stay with us. More from Bloomberg Intelligence coming up after this. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients.

6:37We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at Vanguard.com slash audio. That's Vanguard.com slash audio. All investing and subject to risk, Vanguard Marketing Corporation Distributor. I'm Carol Masser. And I'm Tim Stenevec, inviting you to join us for the Bloomberg Business Week Daily Podcast. Now, every day we are bringing you reporting from the magazine that helps global leaders stay ahead.

7:15We've got insight on the people, the companies and trends that are shaping today's complex economy. That's right, Tim. We're all over global business, finance, tech news, all as it is happening in real time. And we've got complete coverage of the U.S. market close. Gotta say, basically, if it impacts financial markets, if it impacts companies, if it's impacting trends and narratives that are out there, we are on it. We also have a lot of fun doing it. Bloomberg Business Week also brings you the analysis behind the headlines through conversations with our expert guests. And we are doing this all live each weekday.

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8:10You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. TJ Maxx. I reported some earnings here. Mary Ross Gilbert covers the stock for Bloomberg Intelligence as a retail analyst. She's based out there in L.A. Mary, I know you guys like the T.J. Maxx. I mean, Alex is a fan. Alex Steele's a fan. Scarlett Foo's a fan. Lisa Mateo's a fan. I have the card. You've got the card. I have the credit card. All right. Very good.

8:45Mary, are you a fan? Are investors a fan? Paul, you are absolutely right. I'm a fan, too. And it's because they carry such a variety of brands and it appeals to all income groups. So if you have a luxury consumer, you can get Balenciaga, you can get Chloe, Lowe. So they carry all of the brands. And then if you're more pressed and you're really a value consumer, they have Steve Madden, they have Theory. So they really, they have Puma, they have Nike, Adidas. So they have all the brands that consumers want. And that's why their MarMax, which is TJ Maxx and Marshall's division, reported a comp sales increase of 6%.

9:30And that's why, if you look at the overall results, they were up 5%. So a lot of strength there within the MarMax home goods. And of course, Canada was up 8%. So we're seeing consumers flock to get the brands that they want. And they've had some amazing buying opportunities. so their margins were higher. So the way that TJX stocks its stores is that they get inventory that hasn't sold at full price stores. But if all these merchants, all these retailers are managing their inventories better and don't have a lot of excess inventory, where does TJX get its inventory? I mean, it has to have another option, right?

10:13Yeah, Scarlett, you raise a good question. But But the fact is that some of the retailers, but also the brands themselves. So if you think of, for example, PVH, which has the Tommy Hilfiger and Calvin Klein brands, we see those brands pretty prevalent throughout Off Price. So that's been a good channel for them to sort of release some of that excess inventory. And when they work with some of their wholesale partners, including the department stores, So where you have product that's not selling, off-price is just a natural fit to be able to release that inventory. So you want to keep your inventory fresh in the stores, especially when you're a full-price operator.

10:54And there hasn't been any slowdown in terms of that excess inventory. And that's why even on the luxury side, where typically you wouldn't think you'd find markdowns, it's been pretty prevalent, especially with overall weakness in luxury. So what is the folks at TJ Maxx? What are they saying about the consumer these days? Well, the consumer, I mean, they're really seeing strength. So it's interesting because when you sort of read the take on target with their results today and they sort of cited, you know, the consumer is very cautious. But that caution, I think what's really going on is that they've got the brands that consumers want.

11:35So those that are executing are the ones that are getting the sales, because even some retailers that are more full price oriented are generating sales or they may be promotional. Like we're going to get Gap when they go to report tomorrow. And we think we're going to see strong results there out of Old Navy and out of Gap. And those are their two largest brands. So we think that they're just executing really well and providing great, fresh merchandise. But they're also promotional and they provide value to the consumer. So the consumer is flocking to value. There's no doubt about it. But we do see some operators.

12:09You've got Ralph Lauren on the luxury side. They continue to outperform and their sales are always topping expectations, too. And consumers there are willing to pay full price. So they're a lot less promotional. every year, they seem to be less promotional. For that reason, they're able to sell at full price. So clearly, TJX has a strategy that works well, given the current environment. And even when the economy is doing well, I would argue it has a strategy that works well. At what point do investors want more from the company than just executing on the strategy? Will they want, I don't know, M &A?

12:46Do they want consolidation? Do they want innovation from TJX? Yeah, well, so that's the reason why TGX is focused, you know, internationally. So they're going to be entering Spain in 2026. So coming next year. And of course, they've had some, they have two joint venture investments, one in Mexico, and then one in the Middle East. And they're both off price retailers that they've invested in. So they're basically taking their talent and providing them a platform to leverage their talent in these joint ventures and to grow that way. So they're always looking for ways because, Scarlett, you bring up a good point.

13:24TJX trades at a pretty high premium in the off price space. And generally, it's a pretty big premium. That is due to their very consistent execution. But you're right. Consumers keep wondering, well, how can they keep growing on top of all this growth? And yet they keep doing it. But as they talk about, look, they have dropped several times a week. There's not a lot of retailers that offer fresh merchandise several times a week. And they curate the merchandise by location. So they're very cognizant of the demographics for each location. Stay with us. More from Bloomberg Intelligence coming up after this.

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15:06You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's talk a little bit of commercial real estate here. We can talk about big markets, small markets. We do that with Liz Hart, president of leasing for North America. The name of the firm is Newmark, joining us live here in our Bloomberg Interactive Broker Studio. We appreciate that. Liz, you step back. Let's start with retail. Yeah. Talk to us about the retail marketplace.

15:39Where are we in terms of filling that up? Absolutely. So overall, retail is performing really well this year. Lowest availability we've seen is 5%, and we're at 5.3 right now. So across the market, it's doing pretty well. But like most of the market, it's a quite bifurcated story. So indoor malls performing very well. Power centers performing very well. But if you look at what the availability is, the availability that we're tracking, half of it's been on the market for over 24 months. So it's that bifurcated story that stuff's not moving. It's really not moving. What does it look like in city centers versus the suburbs?

16:13I think about a couple of places I've been to, like Seattle, which there are parts of downtown Seattle which look vacant. But then you go to the suburbs like Bellevue and, I mean, traffic is out of control and it looks like everyone has gravitated over there. For certain cities that have really been hit hard by the work from home phenomenon, what does that look like? So we're seeing that trend start to stabilize. It definitely was a COVID trend that was very, very pronounced. And in the last 12 months, it started to smooth out. So it is starting to show that it's starting to blend. But in the market that you just showed, Seattle is a very occupier-friendly market.

16:47So that's one in which the retailers are really calling the shots. And that's true in a lot of those West Coast markets right now. You're not seeing that as much in other markets, particularly in the Sun Belt, where it's really the landlords who are calling the shots. So it is a suburban-urban trend, but it's also a geographic trend across the United States. Here in New York City, we just had one of the maybe the coolest office building open up the J.P. Morgan building on Park Avenue. What one to watch, right? We can't go in there yet, though. We can't? Maybe we can ask Jamie Dimon. You think he'll let us in if we ask him on the radio?

17:18Yeah, he allows us to. Remote broadcast there. But again, across the street from Penn Station on, I guess it's 6th Avenue, the empty lot there where that old Pennsylvania hotel used to be. So it seems like the city's definitely getting better. It's back. How does New York City look just from an office perspective? Absolutely. So in the trophy category, you're below 5 % availability. So low single digits, very, very high performing. Again, you do have that kind of tale of two cities going on where the lower end of the market isn't performing as strongly. But we're seeing very high absorption in the top category, very strong demand being led.

17:54Again, you know, financial services sector, tech sector, which is coming back. And you're having a little bit of an AI boom here in New York City. a lot of companies coming out for the West Coast that want to get into New York City's tech talent, which is bigger than it's ever been. It's great to see that happening here in New York City. That is super interesting. Talk a little bit more about that. What kind of space are they looking for? How quickly are they growing? And where do they want to be situated? Do they want to be in Midtown near banks? Do they want to be downtown where it's always been more of...

18:22Cool. Yes, that. And what's the New York name for our tech sphere? It's Silicon Alley? No. Yeah, maybe. Silicon Alley. I'd say Midtown South and then South of that. They do like to be more downtown for the most part. No Midtown then, really. Although AI is a little bit of everywhere because it's also very much where we are right now, right? Because it's even in this building. You guys have an AI division and the talent here is going to be in your building as well. So it really is everywhere. But in terms of how quickly it's growing, I'll talk about San Francisco first, then we'll mimic how it's here as well.

18:55It's pretty incredible. It's growing as quickly as I've ever seen it in my 20-year career. There's several companies in San Francisco that started less than five years ago that are already looking for over 100 ,000 square feet. I think there's seven as of the last count, but the number's changing so quickly, it's hard to keep track of. And what you're really seeing is a commitment to the office space. So how interesting is this, right? They're able to build new companies. They certainly have access to technology. You know that. And they're a tech-first company. But why are they choosing to be in the office?

19:24Well, they're solving big problems. And when they're doing it, they want to be doing it face-to-face. and they're choosing to do it mostly in higher end buildings, creative buildings. They love high ceilings. They love to have natural light. And one thing that's really interesting is a lot of them are thinking about productivity hacks. So how do they get snacks that are elevating their productivity? How do they make sure that they even have the level of oxygen? Isn't that interesting to make sure that they're maximizing their productivity? So a lot of an analytical approach to real estate that's probably much more than we've seen in that past generation.

19:55How about industrial space? It seems like for a while there, we were building these, you know, Amazon distribution centers everywhere you could. I mean, half of the state of New Jersey is an Amazon distribution center, I think. Talk to us about industrial. Yeah, absolutely. So Amazon doesn't seem to be slowing down. So that trend does continue. But what I would say in general is that we are still seeing, you know, some absorption that's happening. We built quite a bit of industrial. So it does feel like from the data, there's a little bit of a pullback in the data of an increase in availability.

20:26But it's just because the market's catching up to what was built. And we'll see that for the next couple of quarters. But we are very long on industrial being a very solid market in the U.S., especially with the reindustrialization that's happening and kind of the reformation of supply chains based on what's happening with tariffs. But what's also interesting is Small Bay Industrial. Wow, what a hot part of the market. I mean, very, very low vacancy, a lot going on there too. So the market's feeling pretty hot. And then from a user perspective, 3PLs are really - What's a 3PL? 3PLs. Oh gosh, make me explain these.

21:00I'm like, it's what you do when you're redoing the supply chain of logistics. So it's kind of like a, I don't want to call it the we work of supply chain. That might be too simplifying it. But that kind of thing, I guess. basically have them take it on and then they reposition it for you. But 3PLs, that's really the dominant player in the market. Which city is kind of hitting on all cylinders here when it comes to industrial, when it comes to office, when it comes to retail? Oh, all three. I think probably if you're going to say all three, it would have to be somewhere in the Southeast quadrant.

21:34Sunbelt. Sunbelt and Southeast quadrant is where I would say it's probably hitting on all three at the same time. 30 seconds left. If I want to go out and build something, build a building, office tower something, can I get the capital to do it? Can I get the banks to lend me money to do it? Well, it certainly depends on what you're building, but if you're building for Trophy in a place with good demand, you can now. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, Tune in and the Bloomberg Business App.

22:08You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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