Home Depot, sensing worrisome economic sentiment among homeowners and contractors, cuts 2024 outlook
Home Depot’s second-quarter sales rose slightly as the nation’s largest home improvement retailer benefited from an $18 billion acquisition this spring, but customers continued to rein in spending because of higher overall costs and high interest rates.
Sales rose slightly to $43.18 billion from $42.92 billion, topping Wall Street’s expectations of $42.57 billion, according to a survey by Zacks Investment Research.
Quarterly performance improved due in part to the acquisition of contract supplier SRS Distribution, which contributed $1.3 billion to Home Depot’s sales in the quarter. SRS supplies materials to professionals such as roofers, landscapers and pool installers.
“Home Depot’s decision to deepen its expertise in specialty categories through the acquisition of SRS Distribution is to be welcomed as it adds a new customer base,” said Neil Saunders, Managing Director at GlobalData. “We believe the integration of SRS will deliver sales and earnings benefits over time, while providing a key point of differentiation against competitors like Lowe’s who are trying to capitalize on the professional sector.”
The performance helped Home Depot halt its sales decline. In the first quarter, Home Depot sales fell 2.3% to $36.42 billion as the Atlanta-based company struggled with high mortgage rates, inflation and a late start to spring. It was the third straight quarter of sales declines for the retailer, which has seen sales soar during the pandemic as millions of people spent more on their homes.
Customer transactions declined 1.8% in the quarter and they also spent less, with the average ticket coming in at $88.90 compared to $90.07 in the same three months last year.
Additionally, sales at stores open at least a year, a key indicator of a retailer’s health, fell 3.3% in the quarter. In the U.S., that figure fell 3.6%.
The company now expects sales at stores open at least a year in 2024 to decline 3% to 4%. Its previous forecast was for a decline of about 1%. Home Depot expects full-year earnings per share to decline 2% to 4%. The company previously expected earnings per share to grow about 1%. Total sales for the year are expected to increase 2.5% to 3.5%, the company said. Its previous forecast was for an increase of about 1%.
Saunders said Home Depot’s revised outlook “suggests more negative management sentiment about the consumer economy and reflects a more cautious rate-cutting stance by the Fed than expected earlier in the year.”
Home Depot shares fell 3% before the open Tuesday.
“The long-term fundamentals supporting demand for home improvement are strong,” CEO and Chairman Ted Decker said in a prepared statement Tuesday. “During the quarter, rising interest rates and heightened macroeconomic uncertainty put pressure on consumer demand more broadly, leading to lower spending on home improvement projects.”
Home improvement retailers like Home Depot are facing homeowners putting off larger projects because of higher rates and lingering concerns about inflation.
High mortgage rates, which can add hundreds of dollars a month to borrowers’ costs, have discouraged homebuyers for a time, extending the nation’s housing slump into its third year.
Sales of already occupied homes in the United States fell in June for the fourth consecutive month. Sales of new single-family homes fell last month, reaching their slowest annual pace since November.
“Interest rate decisions are more important to Home Depot than to the average retailer, if only because so much of the demand for home improvement is tied to the housing market,” Saunders said. “High interest rates have been and continue to be a disincentive to moving.”
For the three months ended July 28, Home Depot Inc. earned $4.56 billion, or $4.60 per share. A year ago, it earned $4.66 billion, or $4.65 per share.
Excluding exceptional items, earnings per share were $4.67, while Wall Street was expecting earnings per share of $4.54.
