The news: Lowe’s said competitors used tariff refunds to cut prices on grills, patio furniture and live goods in July. It chose not to match them.
Comparable sales rose 0.2% for the fiscal second quarter, a fifth straight positive quarter. But Lowe's cut its full-year outlook to the bottom of its prior range: $92 billion in sales on flat comps.
The refunds are the IEEPA duties the Supreme Court struck down in February, and Customs has been paying them back to importers all year. Until now, the money showed up in earnings reports as one-time gains, cost offsets or price cuts.
Lowe’s described something different: a rival’s refund arriving as price pressure in its own categories, and a decision to give up sales rather than match.
What changed: Comps rose 1.7% in June but fell 1.2% in July.
Ellison said rivals’ promotions drove the drop: “We had competitors being aggressive on price, primarily seasonal categories. Think about grills, patio, and live goods that probably drove unit and sales performance for them, but obviously was not very profitable. If you look at our July results, you can see that as an impact.”
The discounters, he said, were “competitors, plural” that used refunds to “drive units” and “to clear out seasonal inventory.”
“We did not choose to match some of those promotions because they were not in our financial plan, nor did we think it was financially prudent to match them,” Ellison said.
The details: Lowe’s collected refund money too, but far less, and higher freight costs offset it.
Its $80 million refund added 30 basis points to gross margin. But CFO Brandon Sink said it was “largely offset by elevated fuel and transportation costs during the quarter.” He said those costs will run “a bit more elevated” in the second half as increases that built up in the first half work through.
Total inventory ended the quarter at $17.7 billion, up $1.4 billion from a year earlier. Sink said the increase came from the timing of last year’s tariff-driven buying and from spending to keep items in stock. And about $500 million came from Foundation Building Materials, the building-products distributor Lowe’s bought last fall.
The pattern: Ellison did not name the discounters. But he said analysts could check for themselves: “It’s pretty easy to determine who did what. Just look at their tariff refunds versus their gross margin versus last year.”
What the biggest recipients have disclosed:
Target booked $994 million and says it will keep investing in price, after repricing more than 10,000 items over the past year.
Home Depot said its $730 million refund will be fully absorbed by higher fuel, energy and input costs this year, and it reaffirmed its guidance.
BJ’s Wholesale put roughly $20 million into member prices in the spring.
The counter: Ellison said the discounting will not repeat because the money runs out. “We don’t see this happening in the second half of the year because we don't see additional tariff refunds coming to competitors in the second half of the year,” he said. He called July “a moment in time.”
Home improvement, he said, tends to be a rational category on price, and “we believe we’re going to get back to that in the second half of the year.”
But refund money is still arriving. Walmart says its outlook reflects putting its remaining refunds into price.
Lowe’s expects more itself. Sink said the $80 million is “a smaller portion” of the duties Lowe’s paid over the past 12 to 18 months. And further refunds “are going to be reinvested in customer-facing actions,” he said.
What’s next: Lowe’s left any further refunds out of its guidance, and Sink said the company will disclose “any future tariff refunds received and how those are used” on future earnings calls.
The next read on both the promotional environment and the refund total comes in November, when Lowe’s reports fiscal third-quarter results.
