Home Depot's (HD) earnings show shoppers are putting their HGTV dreams on hold.
It was another subdued quarter as consumers sought fewer do-it-yourself projects compared to during the pandemic. Chief Executive Officer Ted Decker said the quarter was “impacted by a late start to spring and continued weakness in some large discretionary projects.”
On Tuesday morning, the home improvement retailer posted revenue of $36.42 billion, compared to Wall Street's expectations of $36.66 billion. This is a decrease of approximately 2.3% from the previous year. The company posted revenue of $37.26 billion a year ago.
Adjusted earnings per share were $3.60 to $3.63, beating expectations.
Consumers are visiting stores less often and spending less when they do. Lower foot traffic and reduced ticket sizes (down 1% and 1.3%, respectively) contributed to the 2.8% decline in same-store sales.
read more: Best credit cards for home improvement in May 2024
Billy Bastek, head of merchandising, said the building materials and power sectors recorded growth, with sales of outdoor gardens, paints, lumber, plumbing and hardware increasing year over year. This exceeded the company average.”
However, the company did see a decline in large-scale DIY projects, “such as kitchen and bath remodels, where customers often use loans to finance their projects.”
Decker said rising interest rates are impacting demand, pointing to kitchen cabinets and countertops as the only category that didn't see a significant drop.
Before the report, investors had expected a worse outcome with pandemic-era growth in the rearview mirror.
“Home Depot faces tough comparisons over the past four years due to rising home values and housing spending during the pandemic,” Joe Feldman, managing director at Telsey Advisory Group, said in a note to clients. ” he said.
Consumers are also “strained” by inflation, interest rates and “a weak housing market,” Feldman wrote.
According to the latest Consumer Price Index (CPI), inflation rose 3.5% in March, but existing home sales fell 4.3% in the same month.
“Continued post-pandemic disruptions, weakening fundamental confidence, and historically subdued housing activity have led to strong demand for home improvement retailers,” Oppenheimer analyst Brian Nagel said in a note to clients. “Consumer demand trends remain challenging and are likely to remain weak until at least 2024.” . ”
Decker said sales were down at about the same rate for both DIY customers and professionals like contractors and roofers. “Among professionals, the larger ones continue to outperform those, especially those who are part of the ecosystem,” he added.
Professional consumers make up approximately 50% of Home Depot's customer base, while Lowe's (LOW) has a 25% customer base.
In March, Home Depot announced plans to acquire SRS Distribution, a network of independent roofing, pool and landscaping distributors in the United States. The pending deal could add $50 billion to the total addressable market “by opening up opportunities with specialized trade professionals,” said Bank of America analyst Robert Ormes. be.
“SRS gives us a whole new white space to operate in three other areas to capture additional market share,” Decker said on a conference call with investors.
Ohms has a Buy rating and thinks this audience and potential acquisitions could lead to sales growth.
“Although macroeconomic conditions remain volatile and pressure on discretionary rights and high-ticket tickets is expected to continue in 2024, HD continues to gain market share by accelerating growth and complex professional capabilities,” he wrote in a statement to clients. I'm predicting that.”
He also expects improved inventory availability, a strong value proposition and strategic investments to contribute to quarterly results.
Here's how Home Depot reported compared to Wall Street estimates, according to Bloomberg Consensus.
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Revenue: $36.42 billion vs. $36.66 billion
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Adjusted earnings per share: $3.63 and $3.60
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Same store sales growth: -2.80% vs. -2.19%
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Pedestrian traffic: -1.00% vs. -1.09%
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Average ticket size: -1.30% vs. -1.50%
In the first quarter, the company reaffirmed its fiscal 2024 outlook for a 1% increase in total sales and a 1% decline in same-store sales compared to fiscal 2023.
CFO Richard McPhail said the company will “update its guidance as appropriate once the SRS transaction is completed,” adding, “We are well positioned to meet our customers' needs in any environment.” I believe there is,” he said.
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Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter @brooke di palma Or email bdipalma@yahoofinance.com.
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