Home DepotThe company said Tuesday that its quarterly sales rose more than 6% year over year, as declines in newly acquired business, hurricane-related repairs and better weather in many parts of the country boosted demand for home improvement supplies.
The retailer also raised its full-year forecast to reflect better-than-expected third-quarter results and some hurricane-related demand increases in the current quarter. It now expects total sales to increase by about 4%, including the impact of the SRS Distribution acquisition. It previously expected total sales to rise by between 2.5% and 3.5% for this year. Each of those forecasts includes an increase from the 53rd week of the fiscal year and a contribution of about $6.4 billion from SRS, which sells supplies to professionals in the roofing, landscape and swimming pool businesses.
The company expects comparable sales to decline approximately 2.5% for the 52-week period. Home Depot previously expected its industry measure, which includes the company's website and stores open more than a year, to decline 3% to 4% compared to the previous fiscal year.
In an interview with CNBC, Chief Financial Officer Richard McPhail said consumers are still putting off purchases as they wait for mortgage rates and borrowing costs to fall and express caution about the economy.
“There is pent-up demand for projects,” he said. “Our clients tell us their lives are changing. Their families are growing. They're upsizing, they're downsizing. They need to move for a job. There's demand for remodeling, and they're putting it off until they see it as a more favorable financing environment, so the demand is there, the question is when to open it.” “.
Home Depot customers continue to postpone projects, even though they are in good financial shape, he said. About 90% of the company's do-it-yourself clients own their homes.
Here's what the company announced compared to what Wall Street expected for the three-month period ending October 27, according to a survey of analysts conducted by LSEG:
Earnings per share: $3.67 vs. $3.64 expected per share Revenue: $40.22 billion vs. $39.32 billion expected
Home Depot shares fell slightly in late morning trading.
Home Depot sales have been impacted by economic factors, as higher interest rates slow housing turnover and more than two years of high inflation make homeowners less willing to buy discretionary purchases and do-it-yourself projects. The company lowered its full-year forecast for comparable sales in August, citing consumer uncertainty.
These dynamics have continued in recent months, McPhail said.
Home Depot's net income for the fiscal third quarter fell to $3.65 billion, or $3.67 per share, from $3.81 billion, or $3.81 per share, in the same period last year. Revenue rose 6.6% from $37.71 billion in the same period last year.
A cart full of items at a Home Depot store on November 14, 2023 in Miami, Florida.
John Cherry | Bloomberg | Getty Images
Comparable sales fell 1.3% in the quarter across the business. That's better than the 3.3% decline that analysts expected, according to StreetAccount. The measure fell by 1.2% in the United States
It was the eighth straight quarter of negative comparable sales at Home Depot, though the smallest decline since the streak of declines began. This performance did not affect the stock this year.
As of Monday's close, Home Depot shares were up about 18% this year, lagging the S&P 500's gain of roughly 26%. The company's stock closed on Monday at $408.29 per share, bringing its market value to $405.55 billion.
Shoppers visited Home Depot stores and shopped online as much as they did in the same period last year. On average, customers spent $88.65 during those transactions, roughly the same amount as the average ticket of $89.36 spent in the same quarter last year.
These numbers do not include the SRS acquisition and new stores, which contributed to the company's overall sales gains. Home Depot expects to open about 12 new stores this fiscal year, which ends in early February.
The weather had a short-term benefit for Home Depot in the quarter, McPhail said. As warmer, drier weather continues into the summer season, customers have purchased outdoor gear such as grills or purchased paint for projects, he said.
Sales related to Hurricanes Helen and Milton contributed about a half percentage point to sales growth during the quarter. Customers purchased items for preparation, such as generators, batteries, and plywood, and then purchased items for repairs, such as building materials.
Even as Home Depot reports modest growth, some investors have bet that the company will see stronger sales in the near future. The Federal Reserve agreed to cut interest rates for the second straight time last week, a move that limits what banks charge for consumer debt — such as mortgage rates and the loan a homeowner might take out for a remodeling project. Home prices remain high, and the age of the U.S. housing stock continues to drive repair and maintenance projects.
In addition, Home Depot has pursued larger businesses from home professionals, such as contractors and roofers, to increase sales. Earlier this year, Home Depot acquired SRS Distribution, a Texas-based company, in an $18.25 billion deal, the largest acquisition in the home improvement retailer's history.
However, McPhail added, it is difficult to predict when consumers' mindset will change and lead to higher housing turnover. He noted that mortgage rates have actually increased since the September meeting where the Fed cut interest rates for the first time since the early days of the Covid pandemic.
“The good news is that housing turnover may not get any worse,” he said. The worst of the decline in housing turnover may now be behind us. The question now is: What will break the deadlock, and at what point might that happen?
Next year could also bring price pressures for Home Depot, just as inflation cools. It will be among the retailers who could face higher costs if President-elect Donald Trump follows through with his plans to impose tariffs on imported goods, especially those from China.
McPhail declined to specify what percentage of Home Depot's merchandise comes from China, but said most of its supplies come from North America. Mexico is “a great source of goods for us,” he said.
“We have sources from several Asian countries, so we are monitoring the matter closely,” he said. “We have focused on diversifying sourcing for years, and will continue to evaluate sourcing decisions moving forward.”
Some retail leaders, including the CEO of Elf Beauty, said they may have to raise prices because of the tariffs. Shoe maker Steve Madden said it will reduce the goods it imports from China by up to 45% over the next year.
Along with the weather, the holiday season has increased Home Depot's sales. They sell a wide range of decorations, including many different artificial Christmas trees.
Since the company's 12-foot-tall skeleton, Skelly, became a sensation during Halloween, Home Depot has debuted other eye-catching — and often oversized — decorations including an 8-foot-tall Santa Claus and a large animatronic reindeer.
“I don't think there are many neighborhoods in the United States that don't have huge outdoor decor from Home Depot,” he said. “So we're coming into your neighbors' front yard, and you don't want to be outdone.”
