Home Depot was above expectations for the quarter, but cautioned that sales will be weaker than expected in the second half of the year as high interest rates and uncertainty dampen consumer demand.
The home improvement retailer said it now expects full-year comparable sales to fall 3% to 4% compared to the previous fiscal year. It had previously expected comparable sales, a metric that takes the impact of store openings and closings and other one-time factors, down about 1%.
Home Depot’s annual sales total will get a boost from the recently completed acquisition of SRS Distribution, a company that sells supplies to professionals in the landscaping, roofing or swimming pool business. Total sales are expected to increase between 2.5% and 3.5% including the 53rd week of the fiscal year and approximately $6.4 billion in sales from SRS. But excluding sales from SRS, the new one-year forecast will be a cut in revenue.
In an interview with CNBC, Chief Financial Officer Richard McPhail said Home Depot has been contending with consumers who have a “deferral mindset” since the middle of 2023. Interest rates have caused them to delay buying and selling homes and borrow money for bigger projects. such as kitchen renovation.
But during the past quarter, he said he surveyed customers and home professionals like contractors has grasped another challenge: a more cautious consumer.
“Pros tell us that, for the first time, customers are not just putting it off because of higher financing costs,” he said. “They’re putting it off because there’s uncertainty about the economy.”
Here’s what the company reported compared to what Wall Street expected in the three months ended July 28, based on a survey of analysts by LSEG:
- Earnings per share: $4.60 vs $4.49 per share expected
- result: $43.18 billion vs $43.06 billion expected
The company’s shares closed more than 1% higher on Tuesday.
Home Depot started a wave of retail earnings, as economists, investors and politicians paid attention to the health of American consumers and tested economic forecasts, including the possibility of a recession. Although inflation has cooled, higher prices – especially for everyday expenses like groceries, energy and housing – continue to frustrate customers. He is also a major talking point on the 2024 campaign trail.
Consumer advice will continue to come this week and next, as Walmart earnings reports and the government showed retail sales numbers on Friday. Other retailers, incl Target, Macy’s and Best Buywill also post the results in the coming weeks.
Compared to many other retailers, Home Depot has a more financially stable customer base. About half of those sales come from home professionals and about half from do-it-yourself customers. About 90% of DIY customers own their own homes.
But Home Depot is still feeling the impact of consumer uncertainty, McPhail said. He said the company is seeing slower demand for a variety of project-backed items, including lighting and flooring.
Home Depot’s net income for the fiscal second quarter down to $4.56 billion, or $4.60 per share, from $4.66 billion, or $4.65 per share, in the year-ago period.
Revenue increased slightly from $42.92 billion in the year-ago period.
Comparable sales fell 3.3% in the quarter in the business and declined 3.6% in the U.S. That was worse than the 2.1% decline analysts were expecting, according to StreetAccount.
This marks the seventh consecutive quarter of negative comparable sales at Home Depot.
Shoppers visited Home Depot stores and websites less often, and spent less when they did, during the quarter compared to the year-ago period. Customer transactions fell nearly 2% and the average ticket fell slightly to $88.90 from $90.07 in the year-ago quarter.
Consumers have delayed projects in part because of anticipated rate cuts by the Federal Reserve, McPhail said. In late July, Fed Chairman Jerome Powell said policymakers could cut rates at the central bank’s meeting in September if data support it.
That will lead to lower mortgage rates and loan costs for homeowners looking to add an addition or finance a project, such as a bathroom remodel.
“What our customers are telling us is, ‘Everything we read is telling us that interest rates are going to be lower in three to six months,'” McPhail said. “‘Why should I borrow to finance a project now instead of just waiting a few months?'”
However, Home Depot leaders have emphasized the bright long-term outlook, pointing to the country’s aging households, housing shortages and significant profit gains, especially during the Covid pandemic.
And McPhail said most Home Depot customers remain financially healthy and employed, even though they are now spending less on home improvements.
The stock price of Home Depot closed at 345.81 US Dollars. On Monday, the company’s shares were down less than 1% so far this year, trailing the S&P 500’s 12% gain.
– CNBC’s Robert Hum contributed to this story.
