Yahoo Finance Home Depot earnings show signs of a consumer pullback
Home Depot (HD) earnings show shoppers are putting their HGTV dreams on hold.
It was another quarter of subdued results, as consumers sought out fewer do-it-yourself projects compared to during the pandemic. CEO Ted Decker said the quarter was "impacted by a delayed start to spring and continued softness in certain larger discretionary projects."
On Tuesday morning, the home improvement retailer posted revenue of $36.42 billion, compared to the $36.66 billion expected by Wall Street. That's about a 2.3% drop year over year; the company posted revenue of $37.26 billion a year ago.
Adjusted earnings per share came in higher than expected at $3.63, compared to $3.60.
Consumers visited the stores less frequently and spent less when they went. Lower foot traffic and smaller ticket sizes, down 1% and 1.3%, respectively, contributed to a fall in same-store sales, down 2.8%.
Its head of merchandising, Billy Bastek, said its building materials and power departments posted growth, and outdoor garden, paint, lumber, plumbing, and hardware sales "were all above the company average" for year-over-year growth.
However, the company did see a drop in bigger DIY projects, "where customers typically use financing to fund the projects, such as kitchen and bath remodel."
Read more: Best credit cards for home improvement for May 2024
Higher interest rates have been impacting demand, said Decker, who pointed to kitchen cabinets and countertops as the only category where there was no significant falloff.
Prior to the report, investors expected poorer results, with pandemic-era growth in the rearview mirror.
"Home Depot faces tough comparisons from the past four years fueled by higher home values and home-related spending during the pandemic," Telsey Advisory Group managing director Joe Feldman wrote in a note to clients.
Consumers were also "strained" by inflation, interest rates, and a "slow housing market," Feldman wrote.
The latest Consumer Price Index (CPI) showed inflation ticked up 3.5% in March while existing home sales fell 4.3% that month.
Oppenheimer analyst Brian Nagel wrote in a note to clients: "Consumer demand trends within home improvement retail remain challenged and are likely to stay sluggish, at least through 2024, owing to ongoing post-pandemic dislocations, weaker underlying confidence, and historically subdued housing activity."
Sales dropped at around the same rate for both DIY customers and professionals like contractors and roofers, per Decker. "Within Pro, the larger Pro continues to outperform particularly those engaging in the ecosystem," he added.
The pro consumer makes up roughly 50% of Home Depot's customer base, compared to 25% for Lowe's (LOW).
In March, Home Depot announced plans to acquire SRS Distribution, a network of independent roofing, pool, and landscaping distributors in the US. The pending deal could increase its total addressable market by $50 billion, "as it would open up opportunities with the specialty trade pro," per Bank of America analyst Robert Ohmes.
On a call with investors, Decker said, "SRS gives us a whole new white space to go play in three other verticals to take even more share."
Ohmes, who has a Buy rating, believes this audience and potential acquisition could help sales growth.
"While the macro remains choppy, and we expect continued pressure in 2024 on discretionary and big ticket, we expect HD to see continued share gains as it accelerates growth and capabilities with the complex pro," he wrote to clients.
He also expects on-shelf availability improvements, a strong value proposition, and strategic investments to help the quarterly results.
Here's what Home Depot reported, compared to Wall Street estimates, according to Bloomberg consensus:
Revenue: $36.42 billion versus $36.66 billion
Adjusted earnings per share: $3.63 versus $3.60
Same-store sales growth: -2.80% versus -2.19%
Foot traffic: -1.00% versus -1.09%
Average ticket size: -1.30% versus -1.50%
In Q1, the company reaffirmed its fiscal 2024 guidance, with 1% total sales growth and a 1% drop in same-store sales, compared to fiscal 2023.
The company plans to "update guidance as appropriate once the SRS transaction closes," Home Depot CFO Richard McPhail said. "We believe that we have positioned ourselves to meet the needs of our customers in any environment."
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
