Home improvement sector faces soft trends as consumer confidence wanes

The home improvement sector is experiencing stable but soft trends in Q3 2025, with consumer confidence emerging as the primary concern among professionals. While Sherwin-Williams (SHW) demonstrated resilience with strong profitability and a Q1 EPS beat, its revenue missed expectations, leading to mixed analyst views including a Citi downgrade to Neutral. Home Depot (HD) appears to be outperforming Lowe's (LOW) in comparable sales, reflecting diverging performance within a sector facing muted sentiment despite slight improvements in near-term growth expectations.

Analysis

The home improvement sector is navigating a period of muted sentiment in Q3 2025, characterized by stable but soft trends. The primary headwind identified in a KeyBanc survey is deteriorating consumer confidence, which 55% of professionals cited as their top concern—a record high for the survey. While overall near-term growth expectations have ticked up slightly to 1.6%, a notable divergence exists, as large-sized professionals forecast a -1.8% contraction for the upcoming year, signaling potential weakness in larger projects. Within this environment, Sherwin-Williams (SHW) presents a mixed financial profile. The company exhibits strong underlying fundamentals, including a 48.7% gross margin, a 70% return on equity, and a 47-year track record of uninterrupted dividend payments. However, it reported a Q1 2025 revenue of $5.31 billion, missing the $5.42 billion consensus forecast, which has prompted analyst caution. Citi downgraded SHW to Neutral, lowering its price target to $385, while BofA maintained an Underperform rating, both citing risks in the housing and end markets. In the retail sub-sector, a clear performance gap is emerging between Home Depot (HD) and Lowe’s (LOW). Home Depot is reportedly tracking above Q2 comparable sales expectations and is the preferred retailer for 68% of surveyed professionals, whose clients show a positive +2.6% near-term revenue outlook. Conversely, Lowe's appears to be facing greater pressure, with its core professional base anticipating a -0.7% revenue decline.

Key Decisions for Investors

• Given Sherwin-Williams' conflicting signals of strong profitability but a recent revenue miss and analyst downgrades, investors should closely monitor housing market data and consumer confidence trends for a potentially better entry point, as suggested by Citi.
• The stark divergence in professional sentiment and performance metrics between Home Depot and Lowe's may warrant a relative value strategy, potentially favoring long positions in HD over LOW.
• Investors with exposure to the home improvement sector should pay particular attention to the pessimistic -1.8% growth forecast from large-sized professionals, as it represents a significant downside risk not captured in the aggregate industry outlook.
• For long-term, income-oriented investors, Sherwin-Williams' 47-year dividend history and reaffirmed full-year guidance could justify holding the stock through near-term volatility, viewing it as a resilient name in a challenging sector.