Lowe's Lumbers as Housing Slows

The weakness at Lowe's comes after Home Depot's better-than-expected results for its second quarter were partly overshadowed by slower sales growth and a cautious outlook for the year. The largest home-improvement chain said its same-store sales, or comps, declined 0.2% for the quarter. The company now expects to hit the bottom end of its January guidance for the year, calling for 10% to 14% EPS growth on 14% to 17% sales growth.

"We believe discretionary dollars will become repair and maintenance dollars," said Home Depot's CEO Bob Nardelli on a conference call with analysts Tuesday. "On the other hand, the consumer is feeling the pressure of higher oil and gas prices, rising interest rates and adjustable-rate mortgage resets, and this pressure on the consumer impacts our transaction count. Therefore, we see a challenging second half, and we are planning conservatively overall, but not in the retail business."

The housing slowdown combines with high energy prices, rising interest rates, heavy debt loads and recent softness in monthly employment numbers to challenge consumers' spending habits in a way that some observers view as a looming threat to economic expansion. Others say it's a natural slowdown from extraordinary growth rates that can be absorbed by underlying strength in the economy.

"The housing market has been so strong for so many quarters. Now, instead of seeing record growth, we're seeing decent growth," says Craig Johnson, president of retail consulting firm Customer Growth Partners. "Home sales and turnovers have not fallen into a ditch. Things are just slowing down, and there's nothing wrong with nice, sustainable moderate growth."