Home Depot It topped quarterly expectations on Tuesday, but warned that sales would be weaker than expected in the back half of the year as higher interest rates and consumer uncertainty dampened demand.
The home improvement retailer said it now expects full-year comparable sales to fall 3% to 4% compared to the previous fiscal year. The metric, which takes into account the impact of comparable sales, store openings and closings and other one-time factors, had previously expected a decline of about 1%.
Home Depot’s full-year sales will get a boost from its recently completed acquisition of SRS Distribution, which sells products to professionals in the landscaping, roofing or pool businesses. Total sales are expected to increase 2.5% to 3.5%, including the 53rd week of the fiscal year and about $6.4 billion in sales from SRS. Yet excluding the sale from SRS, its new full-year forecast revenue would be the equivalent of a cut.
In an interview with CNBC, Chief Financial Officer Richard McPhail said Home Depot is struggling with “allocation-minded” consumers from mid-2023. Interest rates have caused them to put off buying and selling homes and take out loans for bigger projects. Like kitchen renovations.
However last quarter, he said surveys of home professionals such as customers and contractors Another challenge has been seized upon: more wary consumers.
“For the first time, pros are telling us that their customers aren’t putting off because of high financing costs,” he said. “They’re procrastinating because of the high sense of uncertainty in the economy.”
Here’s what the company reported compared to Wall Street expectations for the three-month period ended July 28, based on LSEG’s survey of analysts:
- Earnings per share: $4.60 per share vs. $4.49 expected
- Revenue: $43.18 billion and expected $43.06 billion
Shares fell more than 4% in premarket trading.
Home Depot is kicking off a wave of retail earnings, including the odds of a recession, with economists, investors and politicians paying close attention to the health of American consumers and forecasting the economic outlook. Even as inflation eases, high prices — especially for everyday expenses like groceries, energy and housing — continue to frustrate consumers. They have also become a major talking point on the 2024 campaign trail.
Consumer tips will follow this week and next Walmart Income reports and the government shares retail sales numbers on Thursday. Other retailers including target, Macy’s And Best buyThe results will also be released in the coming weeks.
Compared to many retailers, The Home Depot has a more financial customer base. Half of its sales come from home professionals and half from your own customers. About 90% of those DIY customers own their own homes.
However, Home Depot still felt the impact of consumer uncertainty, McPhail said. He said the company saw slower demand for a range of project-driven products, including lighting and flooring.
Home Depot’s net income for the second quarter of the fiscal year decreased to $4.56 billion, Or $4.60 per share, $4.66 billion, or $4.65 per share, a year earlier.
Revenue was up slightly from $42.92 billion in the previous year.
Comparable sales fell 3.3% in the quarter across the business and fell 3.6% in the U.S., worse than the 2.1% decline analysts had expected, according to StreetAccount.
It marked the seventh consecutive quarter of negative comparable sales at Home Depot.
Consumers are putting off plans in part because of the Federal Reserve’s widely expected rate cut, McPhail said. In late July, Fed Chair Jerome Powell said policymakers could cut rates if data supports the Fed’s September meeting.
This can lead to lower mortgage rates and borrowing costs for homeowners looking to supplement or finance a project like a bathroom remodel.
“What our clients say in their favor is, ‘Everything I’ve read tells me that interest rates are going to be low in three to six months,'” McPhail said. “‘Why should I take out a loan to finance the project instead of waiting a few months?”
However, Home Depot leaders stressed the bright long-term outlook for housing development given the nation’s aging population, its housing shortage and significant property value gains, especially during the years of the Covid pandemic.
Most of Home Depot’s customers are currently spending less on home improvements, but are financially healthy and employed, McPhail said.
Shares of Home Depot closed at $345.81 on Monday. As of Monday’s close, the company’s shares are down less than 1% so far this year, trailing the S&P 500’s 12% gains.
— CNBC’s Robert Humm contributed to this story.
