Home Depot First Quarter 2024 Results (HD)

In an interview with CNBC, CFO Richard McPhail said customers were in a waiting game that began in the second half of last year as they reacted to rising mortgage rates. He said the company expects these trends to continue.

“The home improvement customer is very healthy from a financial standpoint,” he said. “So it’s not about not having the ability to spend. What they’re telling us is they’re just postponing these projects because, given the higher rates, it just doesn’t seem right. good time to execute them.”

The logo of American home improvement chain Home Depot is seen in Mexico City, Mexico, January 15, 2020.

Luis Cortés | Reuters

Here’s what the company reported for the three months ended April 28. compared to what Wall Street expected, based on a survey of analysts by LSEG:

• Earnings per share: $3.63 versus $3.60 expected

• Income: $36.42 billion versus $36.66 billion expected

Net income for the fiscal first quarter declined to $3.6 billion, or $3.63 per share, from $3.87 billion, or $3.82 per share, a year earlier. Net sales fell 2.3% from $37.26 billion.

Comparable sales fell 2.8% in the fiscal first quarter companywide and were down 3.2% in the United States.

Shares of Home Depot fell nearly 2% in premarket trading.

Home Depot is facing a tougher real estate environment, which has dampened demand for DIY projects. About half of Home Depot’s sales come from do-it-yourself customers and the other half come from professionals like roofers and landscapers.

As interest rates remain high, consumers are reluctant to move out of their homes and buy a new one – the kind of turnover that often inspires home projects. Rising interest rates have also undermined the desire for larger-scale projects that may require financing. In recent quarters, Home Depot has seen its customers purchase fewer big-ticket items and take on smaller projects — a trend that persisted into the most recent quarter.

During the fiscal first quarter, customers visited Home Depot’s stores and website less and tended to spend less when they did. Customer transactions fell 1% to 386.8 million and the average ticket fell 1.3% to $90.68.

Home Depot saw sales moderate after more than two years of explosive demand during the Covid pandemic. The company posted its worst revenue shortfall in nearly two decades and cut its guidance in the first quarter of last year. Home Depot’s sales totaled $152.7 billion in the fiscal year ended January, a 3% year-over-year decline.

Inflation could also play a role in this decline, as consumers spend more money on essentials and have to make trade-offs when spending their discretionary income.

However, McPhail said Home Depot isn’t seeing its customers opt for cheaper items, like cheaper power tools or appliances. He blamed the company’s declining sales largely on consumers’ “carry-over mentality” and a housing market that has slowed significantly.

“When we saw mortgage rates decline slightly, as we saw earlier this quarter, housing turnover appears to respond quickly and strongly in a positive direction,” he said. “So we think that’s an indicator that there’s a huge pent-up demand for household formation and housing turnover, as well as the large projects associated with housing turnover.”

Weather also weighed on sales last quarter, he said. Spring is the biggest sales season for home improvement retailers, including Home Depot. Still, customers have delayed shopping outside due to colder and wetter weather in many parts of the country, he said.

Those spring purchases have started to pick up as the weather improves, he said.

To overcome slowing sales, the home improvement retailer has accelerated its strategy to attract professionals, as they tend to purchase larger quantities and offer a more stable source of sales. Home Depot has a growing network of distribution centers across the country that can store and deliver roofing shingles, insulation and other supplies directly to job sites. It announced in late March that it would acquire SRS Distribution, a Texas-based specialty distributor of roofing, landscaping and swimming pool supplies, for $18.25 billion, in the largest acquisition in company history. the company.

McPhail said the deal was still on track to close this fiscal year, which ends in early February.

In addition to courting professionals, Home Depot is trying to boost its growth by opening a dozen new stores this fiscal year and adding features to improve its online and in-store experience.

Home Depot shares closed Monday at $340.96. Year to date, Home Depot shares have fallen about 2%, compared with the S&P 500’s gains of about 9%.