On Tuesday, Home Depot (NYSE: HD) warned of a decline in annual profit and a bigger drop in its annual comparable sales, as weak discretionary spending dampened expectations of a recovery in consumer sentiment this year.
Customers have delayed big projects such as flooring, kitchen cabinets, and baths due to higher borrowing costs and steep inflation, even as higher mortgage rates and home prices hurt new home sales.
Shares of the Dow component, which had dropped after the results, struggled for direction after softer U.S. producer prices lifted expectations of an interest-rate cut in September, which could boost home sales.
Weak new home sales in May and June led to foot traffic dropping 0.4% in July after a 4.3% rise in June, according to data from Placer.ai.
“Everyone’s expecting rates are going to fall. So they (the customers) are deferring those (larger) projects,” said CEO Ted Decker on a post-earnings call.
Comparable sales fell 3.3%, steeper than expectations of a 1.98% decline, according to LSEG data, while customer transactions, an indicator of traffic at Home Depot, slipped for the 13th straight quarter.
Home Depot (NYSE: HD) expects annual comparable sales to drop between 3% and 4%, compared with its prior view of a nearly 1% decline, while diluted profit per share is expected to drop 2% to 4%.
The updated forecast “appears reasonable—if not conservative—and should de-risk the outlook and the stock from here,” said Wedbush analyst Seth Basham in a note.
Following the completion of the deal for building materials supplier SRS Distribution in June, Home Depot is investing more in business for professional builders as well as roofers, landscapers, and pool contractors to offset weak demand from individual customers.
The company said the deal is expected to add about $6.4 billion to its sales for the year.
(Source: Reuters)
Edward Cooke is a financial analyst, freelance writer, and editor. He has six years of experience in financial journalism. He has an in-depth understanding of equities markets, tracking major indices and providing real-time analysis on stock price movements, corporate earnings, and market sentiment.
