home depot Quarterly sales fell short of Wall Street expectations on Tuesday as shoppers postponed spring shopping by deferring larger discretionary projects such as bath and kitchen remodels due to high interest rates.
Still, the home improvement retailer reaffirmed its full-year outlook, adding an extra week from a year ago. The company said it expects total sales in fiscal 2024, including the additional days, to increase by about 1%. However, the retailer said that excluding that additional week, it expects comparable sales, which exclude the impact of store openings and closings, to be down about 1%.
Chief Financial Officer Richard MacPhail said in an interview with CNBC that customers have been on a waiting list that began in the second half of last year in response to rising mortgage rates. He said the company expects these trends to continue.
“Home improvement customers are very financially sound,” he said. “So it’s not that they don’t have the ability to spend. What they tell us is they’re just giving us higher rates and putting off these projects, and it’s not the right time to do them. It seems so.”
The logo of Home Depot, an American hardware store chain, is seen in Mexico City, Mexico, on January 15, 2020.
Luis Cortes | Reuters
Here’s what the company reported for the three months ending April 28th: Comparison with Wall Street expectations based on analyst survey by LSEG:
- Earnings per share: $3.63 vs. $3.60 expected
- Revenue: $36.42 billion vs. expected $36.66 billion
First-quarter net income decreased to $3.6 billion, or $3.63 per share, from $3.87 billion, or $3.82 per share, in the year-ago period. Net sales decreased 2.3% from $37.26 billion.
First-quarter comparable sales were down 2.8% across the business and 3.2% in the United States.
Home Depot is facing a tough housing climate with less demand for do-it-yourself projects. About half of Home Depot’s sales come from his DIY customers, and the other half from professionals like roofers and landscapers.
With interest rates remaining high, consumers are reluctant to leave their homes and move into new homes, a move that is fueling housing projects. Rising interest rates are also reducing appetite for large-scale projects that require financing. Over the past few quarters, Home Depot has seen customers cut back on big-ticket purchases and take on smaller projects, a trend that continued in the most recent quarter.
In the first quarter, customers tended to visit Home Depot stores and websites less often, and when they did, they spent less. Customer transaction value decreased 1% to $386.8 million, and average ticket value decreased 1.3% to $90.68.
Home Depot has seen explosive demand for more than two years during the coronavirus pandemic, but sales have remained modest. The company suffered its worst earnings slump in nearly 20 years and lowered its forecasts in the first quarter last year. Home Depot’s sales for the fiscal year that ended in January were $152.7 billion, down 3% from a year earlier.
Inflation may also be contributing to this rebound, as consumers spend more on essentials and are forced to make trade-offs when spending discretionary income.
But MacPhail said Home Depot hasn’t seen customers trade in their products for cheaper items, such as cheaper power tools or appliances. He said the main reasons for the company’s sales decline were consumers’ “procrastination mindset” and a housing market that had slowed dramatically.
“When mortgage rates decline slightly, as we saw earlier this quarter, housing distribution appears to respond quickly and sharply in a positive direction,” he said. “So we think this is an indication that there is a tremendous amount of pent-up demand for household formation and housing turnover and large-scale projects related to housing turnover.”
Weather also weighed on sales in recent quarters, he said. Spring is the biggest shopping season for home improvement stores, including Home Depot. But with colder and wetter weather in many parts of the country, customers have postponed making outdoor purchases, he said.
Spring purchases are starting to pick up as the weather improves, he said.
To overcome weak sales, the home improvement retailer has stepped up its strategy to attract professionals, who tend to buy in larger quantities and provide a more stable source of sales. Home Depot is expanding its network of distribution centers across the country where shingles, insulation and other materials can be stored and delivered directly to job sites. In late March, the company announced it would acquire SRS Distribution, a Texas-based specialty roofing, landscaping and pool supplies distributor, for $18.25 billion, making it the company’s largest acquisition in its history.
Mr MacPhail said the deal was still on track to close for the current financial year, which ends in early February.
Home Depot is trying to spur growth by persuading experts to open about a dozen new stores this year and add features to improve the online and in-store experience.
Mr MacPhail said that although sales were softening, some business dynamics were improving. he said “home” Depot stores are fully staffed and have the highest inventory levels in years. Transportation costs have fallen. He said while organized retail crime remained a challenge for the industry, home improvement stores also saw a year-on-year decline in shrinkage, a term used to describe lost, stolen or damaged items.
Home Depot also added technology to help ensure products are on shelves when customers need them. For example, the company will make sure the products it sells are undamaged and prevent theft when customers use self-checkouts, said Annmarie Campbell, senior executive vice president of U.S. stores and operations. He said that he uses computer vision for this purpose. Earnings calls.
Home Depot stock closed Monday at $340.96. So far this year, Home Depot stock is down about 2%, compared with a rise of about 9% for the S&P 500 Index.