Home Depot reports another quarter of weak earnings as a potential rate cut looms

Home Depot ( HD ) reported another quarter of subdued earnings as buyers held off on major home improvement projects amid high interest rates and tighter wallets.

On Tuesday, the home improvement retailer reported revenue of $43.18 billion, compared with expectations of $43.79 billion, while adjusted earnings per share came in at $4.67, compared with estimates of 4 .52 dollars.

Same-store sales fell 3.3 percent, compared with the 2.39 percent decline expected by Wall Street. This marks the seventh consecutive quarter of negative sales growth for Home Depot. Same-store sales in the U.S. fell 3.6 percent.

Both foot traffic and average ticket were down, down 1.8% and 1.3%, respectively.

The results come on the heels of a weak quarter and outlook from deck maker Trex ( TREX ) last week that sent shares into a tailspin.

UBS analyst Michael Lasser predicted that with “the rumblings that interest rates are going to come down,” consumers are likely to hold back on purchases even more, and that has come as consumers have been shedding large projects.

“The long-term fundamentals supporting demand for home improvements are strong,” Home Depot CEO Ted Decker said in the statement, adding that “During the quarter, higher interest rates and greater macroeconomic uncertainty weighed on consumer demand overall, which led to weaker spending. in home improvement projects”.

But interest rate cuts, the first of which is expected in September, could help spur a recovery.

Joe Feldman of Telsey Advisory Group said investors may have to wait a while to see the effect trickle down to Home Depot. If the Fed cuts rates in September, “it doesn’t mean that sales will go up the next day,” he said.

The company updated its guidance for fiscal 2024. It now expects total sales, including the 53rd week, to rise in the range of 2.5% to 3.5% year-over-year, from 1 % previously expected.

Comparable sales will fall between 3% and 4% for the 52-week period compared to fiscal 2023, worse than the 1% decline previously anticipated.

The company said that while the company’s comparable sales are not currently “on track” to decline by 4%, this “implies incremental pressure on consumer demand”.

Whirlpool ( WHR ) CEO Marc Bitzer told Yahoo Finance Executive Editor Brian Sozzi that more rate cuts will be needed to reignite momentum in the housing market. The company expects to see an improvement in its business in Q3 and Q4.

As Yahoo Finance’s Dani Romero reported, mortgage rates fell to their lowest level since early February after the Federal Reserve set the stage for a September interest rate cut.

The story continues

Rival Lowe’s ( LOW ), which has a larger DIY customer base, reports earnings on Aug. 20 before the market opens.

As the macro environment remains choppy, investors are bullish on the upside of the business. Home Depot’s $18.25 billion acquisition of SRS Distribution was completed ahead of schedule on June 18.

“We believe Home Depot has opportunities with the pro complex, both organically by expanding core Pro Ecosystem capabilities across 17 markets by the end of 2024, and inorganically through SRS,” the Bank of America analyst wrote Robert Ohmes in a note to clients ahead of the results.

The company said the acquisition is expected to contribute nearly $6.4 billion in incremental sales in fiscal 2024.

Here’s what Home Depot reported, compared to Wall Street estimates:

• Income: $43.18 billion vs. $43.79 billion

• Adjusted earnings per share: $4.67 vs. $4.52

• Same store sales growth: -3.30 vs. -2.39%

• Pedestrian traffic: -1.80% vs. -1.46%

• Average ticket size: -1.30% vs. -0.73%

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow X at @Brooke DiPalma or email them at [email protected].

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