House deposit On Tuesday, it beat quarterly expectations but warned that sales will be weaker than expected in the second half of the year as high interest rates and consumer uncertainty dampen demand.
The home goods retailer said it now expects full-year comparable sales to decline 3% to 4% compared with the prior fiscal year. It had previously expected comparable sales, a metric that strips out the impact of store openings and closings and other one-time factors, to decline about 1%.
Home Depot's total annual sales will be boosted by its recent acquisition of SRS Distribution, a company that sells supplies to professionals in the landscaping, roofing and pool industries. Total sales are expected to rise 2.5% to 3.5%, including the 53rd week of the fiscal year and approximately $6.4 billion in SRS sales. However, excluding SRS sales, its new full-year guidance would have implied a revenue cut.
In an interview with CNBC, Chief Financial Officer Richard McPhail said Home Depot has had to deal with consumers who have a “postponement mentality” since mid-2023. Interest rates have caused them to put off buying and selling homes and borrowing money for larger projects, such as renovating a kitchen.
However, during the last quarter, he said, surveys of customers and home professionals such as contractors They have faced another challenge: a more cautious consumer.
“Professionals are telling us that, for the first time, their clients are not deferring payments simply because of higher financing costs,” he said. “They are doing so because of a sense of greater uncertainty in the economy.”
Here's what the company reported compared with what Wall Street expected for the three-month period ended July 28, according to a survey of analysts by LSEG:
- Earnings per share: $4.60 vs. $4.49 per share forecast
- Revenue: $43.18 billion versus the expected $43.06 billion
The company's shares closed Tuesday up more than 1%.
Home Depot kicks off a wave of retail gains as economists, investors and politicians pay close attention to the health of the American consumer and try to forecast the economic outlook, including the likelihood of a recession. Although inflation has cooled, higher prices — particularly for everyday costs like food, energy and housing — continue to frustrate customers. They have also become a major talking point in the 2024 election campaign.
Consumer clues will continue to come this week and next, such as Walmart reports its earnings and government stock retail sales figures on Thursday. Other retailers, including Aim, Macy's and The best buywill also publish the results 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 from DIY customers. About 90% of those DIY customers own their own homes.
Home Depot still felt the impact of consumer uncertainty, McPhail said, though. He said the company saw slower demand for a broad range of project-oriented items, including lighting and flooring.
Home Depot net income for fiscal second quarter decreased to $4.56 billion, or $4.60 per share, from $4.66 billion, or $4.65 per share, in the same period a year ago.
Revenue rose slightly from $42.92 billion in the same period last year.
Comparable sales fell 3.3% in the quarter across the company and declined 3.6% in the U.S. That was 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.
Shoppers visited Home Depot stores and its website less frequently and spent less when they did during the quarter compared with the same period a year ago. Customer transactions fell nearly 2% and the average checkout slipped slightly to $88.90 from $90.07 in the year-ago quarter.
Consumers have put off projects in part because of a widely expected rate cut by the Federal Reserve, McPhail said. In late July, Federal Reserve Chairman Jerome Powell said policymakers could cut rates at the central bank's September meeting if data supports that.
That would lead to lower mortgage rates and borrowing costs for homeowners looking to add on or finance a project, such as a bathroom remodel.
“What our clients are telling their professionals is, 'Everything I read tells me that interest rates will be lower in three to six months,'” McPhail said. “Why should I borrow to finance the project now instead of waiting a few months?”
Home Depot leaders, however, have emphasized the bright long-term outlook for home improvement, citing the nation's aging housing stock, its housing shortage and significant gains in property values, especially during the Covid pandemic years.
And McPhail said most Home Depot customers remain financially healthy and employed, even if they are spending less on home improvements right now.
Home Depot shares closed at $345.81 on Monday. As of Monday's close, the company's stock had fallen less than 1% so far this year, lagging the S&P 500's 12% gain.
– CNBC’s Robert Hum contributed to this story.
