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Let's bring and Drew Redding, Bloomberg Intelligence US home building analysts to give us a recap of what we need to know about Lowe's results. Drew, Good to speak with you is what does lows look like and when it comes to its results compared with its big arrival, Home Depot.
Yes, I think Low's results could be best characterized as better than feared, particularly in light of what we heard from Home Depot yesterday. They 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 one percent, So that would
imply that four Q is relatively flat. But you know, similar to what we heard from Home Depot, they had about one hundred 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.
You know.
That being said, they're still grappling with the same consumer uncertainty and you know, the same weak housing market that their competitors, so you know, still challenges out there in the market.
Drew, I think I understand it correctly that Lows has a lower percentage of sales to professional contractors than does Home Depot. If so, are they trying to narrow that gap? Are they targeting that segment a little more?
Yeah, great question. So Loew's is about thirty percent professional contractors seventy percent DIY. Home Depot is about fifty to fifty, maybe even a little bit higher. On the pro front. What's interesting to your point on investment is the pro space, especially in building products distribution, has really become a battleground among home improvement retailers. You had Home Depot recently do acquisitions for srs and gms, and then you have Lows
who recently acquired foundation building materials. So it's certainly an area where they're making a concerted effort to grow now. LOWS 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 you know, be the supplier of choice, you know, across more building product categories and at a larger scale.
So basically directly competing with Home DEEPO in many ways. Is this going to become duopoly or are There's still a lot of other places that professional contractors can go to.
Yeah, so the building products distributions 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 LOWS 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 frag mented 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, I 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 Low's or home depot, my plywood from Canada that's probably being tariff. 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 Lows gets about sixty sixty percent of its products from the US, so their exposure internationally is maybe not as high as you would expect. China's probably around fifteen to twenty percent. 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 three percent, and part of that is in response to
tariff related price increases. Loose 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 costs will start to come in a little greater as we look into Q four in early twenty twenty six. 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 the kitchen and bath, which to go up to fifty percent in January. So 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.
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YouTube TJ Max. Before to some earnings here, Mary Ross Gilbert covers the stock for Bloomberg Intelligence as a retail analyst. She's based out there in La Mary, I know you guys like the TJ Max. I mean, Alex is a fan. Alex, Alex Steel's a fan. Scarla who's a fan? Lisa Mateo's a fan. I have the card, You've got the car.
I have the credit card?
All right?
Very good?
Mary? Are you a fan?
Our investors a fan?
Paul?
You are absolutely right. I'm a fan too, and they 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 Balanciaga, you can get
Chloe Low, So they carry all of the brands. And then if you're more oppressed and you're really a valued 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 they're Marmas, which is tj Max and Marshall's division, reported a comp
sales increase of six percent, and that's why. You know, if you look at the overall results, they were up five percent, so a lot of strength there within the Marmas home goods and of course Canada. Canada was up eight percent, 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 at 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 tj X get its inventory? I mean it has to have a another option, right.
Yeah, Scarlett, you raise a good question. But the fact is is that some of the retailers, but also the brands themselves. So if you think of for example, PVH, which has the Tommy Hill Figure 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, and there hasn't been any slow down 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 does the folks at cheek kJ max 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. So 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 you know, operators, You'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 there are 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 at what point do investors want more from the company than just executing on the strategy. Will they want I don't know, am an agent? Do 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 twenty twenty six, 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. TJX 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 drops 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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Let's talk a little bit of commercial real estate here. We can talk about big market small markets. We do that with Liz Hard, president of Leasing for North America. The name of the firm is new Mark, joining us live here in our Bloomberg Interactive Broker Studio. We appreciate that. Liz, you step back. Let's start with retail. Talk us about the retail marketplace. Where are we in terms of filling that up?
Absolutely so, overall, retail's performing really well. This year. Lowest availability we've seen is five percent, and we're at five point three right now. So across the market is doing pretty well, but like most of the market, it's a quite bifurcated story. So in normal's 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 twenty four months, So it's that bifurcated story that steth's not moving, it's really not moving.
What does it look like in city center versus the suburbs. I 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 twelve 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. So 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 JP Morgan oh My Park Avenue one.
Watch right, we can't go in there yet though we can't, Well, we can.
Ask Jamie Diamond. You think he'll let us in if we ask him on the radio.
He allows us to remote broadcast there. But again across and then across the street from penn Station on. I guess it's Sixth Avenue, you know 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 five percent availability, so low single digits, very very high performing. Again, you do have that kind of tail 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 again, 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 you know, where do they want to be situated. Do they want to be in midtown your banks? Do they want to be downtown where it's always been more of yes? That And what's the New York name for our tech spirits 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, not Midtown. Then really although AI is a little bit of everywhere because it's also you know, 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. It's pretty incredible. It's growing as quickly as I've ever seen it in my twenty year career. There's several companies in San Francisco that started less than five years ago that are already looking for over one hundred thousand square feet. I think there's seven as of the last count, but the numbers 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. Well, 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.
How about industrial space, It seems like for a while there we're building these Amazon distribution centers everywhere you could, I mean half of the state New Jerseys at Amazon distribution center. I think talk to just about industrial.
Yeah, absolutely so. Well, Amazon doesn't seem to be slowing down. 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, but 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 US, 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, you know,
three pls are really shit. They're the three pls. Oh gosh, make you explain these I'm like, it's it's what you do, and you're redoing the supply chain logistic. So it's kind of like a I don't want to call it the we work of supply chain, that might be too simple, simple simplifying it, that kind of thing. They basically have them take it on and then they reposition it for you. But three pls 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.
Ooh, all three would I think probably if you're going to say all three, it would have to be somewhere in the south southeast quadrants, so I'm sun Belt sun Belt sun Belt in southeast quadrant is where I would say it is probably heading on all three at the same time.
Thirty seconds left. I finally want to go out and build something up, build a building, office tower or 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.
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