Home Depot It beat quarterly expectations on Tuesday, but warned that sales will be weaker than expected in the latter half of the year as higher interest rates and consumer uncertainty dampen demand.
The home improvement retailer said it now expects full-year comparable sales to fall 3% to 4% from a year earlier. It had previously forecast comparable sales, a measure that takes into account the impact of store openings, closings and other one-time factors, to fall about 1%.
Home Depot’s full-year sales will get a boost from its recently completed acquisition of SRS Distribution, a company that sells supplies to professionals in landscaping, roofing and pools. Total sales are expected to rise 2.5% to 3.5% including the 53rd week of the fiscal year and about $6.4 billion in sales from SRS. However, excluding sales from SRS, its new full-year forecast would have lowered revenue.
In an interview with CNBC, Chief Financial Officer Richard McPhail said Home Depot is competing with consumers who have had a “postponement mentality” since mid-2023. Interest rates have caused people to put off buying and selling homes and borrowing money for larger projects, such as kitchen renovations.
However, he said that over the past quarter, surveys were conducted of customers and home professionals such as contractors. It has taken on another challenge: a more cautious consumer.
“Professionals are telling us that for the first time, their clients aren’t just postponing because of higher financing costs,” he said. “They’re postponing because they feel more uncertain about the economy.”
Here’s what the company reported compared to what Wall Street expected for the three-month period ended July 28, based on a survey of analysts conducted by LSEG:
- Earnings per share: $4.60 vs. $4.60 $4.49 per share expected
- profit: $43.18 billion vs. $43.18 billion expected $43.06 billion
Shares fell more than 4% in premarket trading.
Home Depot is riding a wave of retail earnings as economists, investors and politicians pay close attention to the health of American consumers and try to forecast the economic outlook, including the possibility of a recession. Despite slowing inflation, high prices — especially for everyday expenses like groceries, energy and housing — continue to frustrate customers. They’ve also become a major talking point in the 2024 campaign.
Consumer guides will continue to appear this week and next week as well. Walmart Earnings reports and government stock retail sales figures on Thursday. Other retailers, including goal, Messi and Best BuyThe results will be published in the coming weeks.
Compared to many other retailers, Home Depot has a more financially stable customer base. About half of its sales come from home professionals and about half come from do-it-yourself customers. About 90% of its do-it-yourself customers own their own homes.
Home Depot is still feeling the effects of consumer uncertainty, MacPhail said. The company has seen slowing demand for a wide range of project-oriented items, including lighting and flooring, he said.
Home Depot’s Q2 Net Income decreased to $4.56 billion, Or $4.60 per share, from $4.66 billion, or $4.65 per share, in the same period last year.
Revenue was up slightly from $42.92 billion in the same period last year.
Comparable sales fell 3.3% during the quarter across the business and were down 3.6% in the U.S., worse than the 2.1% decline analysts had expected, according to StreetAccount.
This marks the seventh consecutive quarter of negative like-for-like sales at Home Depot.
Consumers have postponed projects in part because of a widely expected interest rate cut by the Federal Reserve, McPhail said. In late July, Federal Reserve Chairman Jerome Powell said policymakers could cut interest rates at the central bank’s September meeting if data supported it.
This could lead to lower mortgage rates and borrowing costs for homeowners who want to add an addition or finance a project, such as a bathroom remodel.
“What our clients tell their professionals is, ‘Everything I read tells me interest rates are going to come down in three to six months,’” McPhail said. “‘Why would I borrow to finance the project now instead of waiting a few months?’”
However, Home Depot leaders emphasized the bright outlook for home improvement in the long term, pointing to the nation’s aging homes, housing shortages and strong gains in property values, especially during the Covid years.
Most Home Depot customers are still financially healthy and employed, even if they are spending less on home improvements right now, McPhail said.
Home Depot shares closed at $345.81 on Monday. As of Monday’s close, the company’s shares are down less than 1% so far this year, lagging the S&P 500’s 12% gain.
— CNBC’s Robert Home contributed to this story.
