When will Home Depot start making a comeback? The persistent decline in same-store sales raises questions

Home Depot (HD 0.55%) has struggled over the past two years, but you might not know it from its share price. Although the company has consistently posted negative same-store sales since the end of 2022, its stock has still generated a total return of 19% over that period.

It’s an interesting dichotomy that begs the question: When will the company start to see a turnaround and will its struggles have a bigger impact on the stock price?

Declining same-store sales

For seven straight quarters, Home Depot has reported same-store sales declines. It’s the type of retailer they’d rather not see.

Data source: Home Depot’s quarterly earnings reports.

In the second quarter of fiscal 2024, transactions fell 2.2%, while ticket sizes fell 1.3%. Not only are fewer people visiting Home Depot stores, but when they do, they are spending less money.

Big-ticket items, which the company defines as costing $1,000 or more, continue to be a weak spot, down 5.8 percent. The company said it is once again seeing less spending on larger projects that typically require financing. Home Depot only said one department as having comp. positive, which was the plumbing.

The home improvement retailer’s total sales rose 0.6 percent to $43.2 billion. Adjusted earnings per share (EPS), meanwhile, fell a penny to $4.67.

Looking ahead, the company lowered its same-store sales guidance for the full year. Same-store sales are now expected to fall between 3% and 4% compared to a previous forecast that called for a 1% drop. Management said the low end of its guidance implied further pressure on consumer demand.

It forecast full-year sales to rise between 2.5% and 3.5%, which includes the benefit of an extra week this year and Home Depot’s recent acquisition of SRS Distribution, which distributes roofing and building materials .

Image source: Getty Images.

When will same store sales return?

Home Depot’s same-store sales struggles stem from a few problems. First, during the pandemic, there was a big increase in demand for large projects, when people were mostly isolated in their homes and started remodeling projects. Then interest rates rose, making project financing much more expensive. Higher rates have also led to a slowdown in the housing market and people moving. Meanwhile, home remodeling and repair projects are often initiated alongside home buying and selling, so the lack of existing home sales also tends to be a headwind.

When trying to predict when remodeling activity might develop, consider the leading Indicator of Remodeling Activity (LIRA), which is published by the Joint Center for Housing Studies at Harvard University. Year-on-year declines in spending are expected to bottom out in the fourth quarter, with a 6.3% decline, while improving to a decline of just 0.5% in Q2 2025.

Image source: Joint Center for Housing Studies at Harvard University.

Given these forecasts, along with Home Depot’s more cautious tone, I wouldn’t expect the company’s same-store sales to turn positive until mid-2025 or later.

Buy, sell or keep?

Although Home Depot’s stock has outperformed the broad market over the past two years, it hasn’t been punished by the market as much as you might think. Even now, the stock boasts a price-to-earnings (P/E) ratio of about 23, close to its historical levels.

Data by YCharts.

At this point, if I owned Home Depot stock, I would continue to own it. The company has the potential to bounce back next year as interest rates ease. But I wouldn’t be a new money buyer at current levels. The recovery already seems partially baked into the stock price, and there is still the possibility that conditions in the industry could worsen if the US slips into a recession.