home depot It beat quarterly forecasts on Tuesday but warned sales in the second half of the year would be weaker than expected as high interest rates and consumer uncertainty dampen demand.
The home improvement retailer said it now expects full-year comparable sales to be down 3% to 4% from the previous fiscal year. The company had expected comparable sales, a measure that strips out the impact of store openings and closings and other one-time factors, to fall about 1%.
Home Depot’s total annual sales will be boosted by the recently completed acquisition of SRS Distribution, a company that sells supplies to professionals in the landscaping, roofing or pool business. Total sales are expected to grow 2.5% to 3.5%, including SRS’s sales of approximately $6.4 billion in the 53rd week of this fiscal year. However, excluding SRS’s sales, its new full-year forecast would amount to a revenue cut.
Chief Financial Officer Richard McPhail told CNBC that Home Depot has been battling consumers with a “postponement mentality” since mid-2023. Borrowing for larger projects.
But he said that in the past quarter, surveys of home professionals such as customers and contractors We captured another challenge: more cautious consumers.
“Professionals tell us that their clients are delaying purchases for the first time not just because of higher financing costs,” he said. “They’re delaying because there’s greater economic uncertainty.”
What the company reported compared with Wall Street expectations for the three-month period ending July 28, according to a survey of analysts by LSEG:
- Earnings per share: $4.60 per share vs. $4.49 per share expected
- income: US$43.18 billion, expected US$43.06 billion
The company’s shares rose slightly in early trading after falling as much as 4% in pre-market trading.
Home Depot is riding a wave of retail profits as economists, investors and politicians closely monitor the health of U.S. consumers and try to predict the economic outlook, including the possibility of a recession. Although inflation has cooled, rising prices — especially on everyday costs like groceries, energy and housing — continue to frustrate consumers. They have also become a major talking point in the 2024 campaign.
This week and next, consumer clues will continue to emerge as Walmart Earnings are released Thursday and the government releases retail sales data. Other retailers, including Target, macy’s department store and best buyresults will also be released in the coming weeks.
Home Depot has a more financially stable customer base than many other retailers. About half of sales come from home professionals and about half from do-it-yourself customers. About 90% of DIY customers own their own homes.
However, McPhail said Home Depot is still feeling the impact of consumer uncertainty. He said the company has seen slowing demand for a variety of project-driven products, including lighting and flooring.
Home Depot second quarter net profit Reduced to $4.56 billion, Earnings per share were $4.60, compared with $4.66 billion, or $4.65 per share, in the same period last year.
Revenue increased slightly from US$42.92 billion in the same period last year.
Comparable sales for the entire business fell 3.3% in the quarter, with U.S. comparable sales down 3.6%, according to StreetAccount, which was worse than the 2.1% decline analysts expected.
This marks Home Depot’s seventh consecutive quarter of negative comparable sales.
Shoppers are visiting Home Depot stores and its website less frequently this season compared with the same period last year, and spending less when they do. Customer transaction volume fell nearly 2%, with average ticket prices falling slightly to $88.90 from $90.07 in the same period last year.
McPhail said consumers are delaying plans in part because of widespread expectations that the Federal Reserve will cut interest rates. At the end of July, Federal Reserve Chairman Powell said that policymakers may cut interest rates at the central bank’s September meeting if the data supports it.
This will result in lower mortgage rates and lower borrowing costs for homeowners who want to add extras or finance projects like bathroom remodels.
“What our clients are telling their professionals is, ‘Everything I’m reading tells me that rates are going to be lower in three to six months,'” McPhail said. “‘Why should I borrow money now to fund this project instead of waiting a few months?'”
Home Depot leaders, however, stressed the bright long-term future for home improvements, pointing to the country’s aging homes, housing shortages and sharp increases in property values, especially during the coronavirus pandemic.
McPhail said the majority of Home Depot customers remain financially healthy and employed, even though they are now spending less on home improvements.
Home Depot shares closed at $345.81 on Monday. The company’s shares were down less than 1% this year as of Monday’s close, lagging the S&P 500’s 12% gain.
–CNBC’s Robert Hum contributed to this article.
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