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American Woodmark (AMWD -11%) is trading sharply lower following its Q1 (Jul) report this morning. AMWD is one of the nation's largest cabinet manufacturers (kitchen cabinets, bathroom vanities) for the remodeling and new home construction markets. After four consecutive large ($0.27+) EPS beats, AMWD has now reported back-to-back EPS misses. Revenue fell 7.9% yr/yr in Q1 to $459.1 mln, which was also below expectations.

• AMWD said it delivered sales growth in the new construction market, but this was more than offset by weaker than projected demand in the remodel market. Looking ahead, AMWD said that softer demand in the remodel market is expected to continue and it has seen a recent slowdown in new construction single family starts. As such, the company expects FY25 sales to decline in the low single digits whereas analysts were looking for slight positive growth.
• Specifically, the company explained that single family housing starts have slowed over the past three months, which is putting downward pressure on cabinet installations in future quarters. Its home center customers have noted higher interest rates and macroeconomic pressures are leading to weaker spending on projects. This has been more significant for higher priced discretionary projects like kitchens and baths.
• The silver lining is that AMWD believes it's not experiencing a loss of market share. Also, its belief is that as interest rates decline, consumer confidence will increase, existing home sales will increase, and the potential for home projects increases. This should serve as a tailwind in calendar year 2025. Also, AMWD expects continued growth in new construction during the back half of the year.
• Another positive that AMWD described was how operational improvements put into place over the past year have helped it mitigate the volume declines affecting the broader repair and remodel industries. AMWD expects investments in automation will drive future operational efficiencies. Also, it's worth noting that AMWD was fairly aggressive with share buybacks in JulQ, as it repurchased about 1.8% of shares outstanding, which is a large amount for one quarter.

Overall, this was a rough way for AMWD to start FY25. We suspect investors were expecting a difficult quarter on the repair/remodel side with muted guidance given its cautious repair/remodel comments on the Q4 (Apr) call in May. However, what was new for investors was the weakening new construction side of the business. What is boils down to is that AMWD needs interest rates to fall, which should kickstart kitchen/bath remodels on both the new construction side and the remodel side. When rates do fall, AMWD is worth keeping an eye on as a way to play it.