(Source – Retail Insight Network)
Home Depot reported lower-than-expected revenue for the most recent quarter, as high interest rates led shoppers to postpone major home improvement projects. The home improvement giant saw a decline in discretionary spending, particularly on larger renovations like kitchen and bathroom remodels.
Despite the revenue miss, Home Depot reaffirmed its full-year guidance, which includes an additional week compared to the prior year. The company expects total sales to grow by about 1% in fiscal 2024, accounting for the extra days. However, it anticipates a 1% decline in comparable sales, excluding the additional week.
Impact of High Interest Rates
In an interview with CNBC, Chief Financial Officer Richard McPhail highlighted that customers are currently hesitant to embark on significant home projects due to high mortgage rates. “The home improvement customer is extremely healthy from a financial perspective,” he said. “They’re just deferring these projects because given higher rates, it just doesn’t seem the right moment to execute.”
For the three-month period ending April 28, Home Depot reported earnings per share of $3.63, slightly above Wall Street’s expectation of $3.60. However, revenue came in at $36.42 billion, missing the expected $36.66 billion. Net income for the fiscal first quarter fell to $3.6 billion, or $3.63 per share, from $3.87 billion, or $3.82 per share, in the year-ago period. Net sales dropped 2.3% from $37.26 billion.
Decline in Comparable Sales
Comparable sales decreased by 2.8% in the fiscal first quarter across the business and by 3.2% in the U.S. This decline reflects the impact of fewer customer visits and reduced spending per visit, with customer transactions falling by 1% to 386.8 million and the average ticket decreasing by 1.3% to $90.68.
Home Depot is facing a challenging housing market, which has affected demand for do-it-yourself (DIY) projects. About half of Home Depot’s sales come from DIY customers, while the other half comes from professional contractors. High interest rates have made consumers reluctant to move or undertake large-scale projects that require financing. This trend has led to customers opting for smaller, more modest projects.
Weather and Seasonal Sales
Adverse weather conditions also impacted sales in the recent quarter. Spring is typically the biggest sales season for home improvement retailers, but colder and wetter weather in many parts of the country delayed outdoor purchases. However, these purchases have begun to pick up as the weather improves.
To counteract slower sales, Home Depot is focusing on attracting professional customers, who tend to buy in larger quantities and provide a more stable source of revenue. The company has been expanding its network of distribution centers to deliver supplies directly to job sites. In late March, Home Depot announced its largest acquisition to date, purchasing SRS Distribution, a specialty distributor of roofing, landscaping, and pool supplies, for $18.25 billion. This deal is expected to close within the fiscal year.
Home Depot: Store Expansion and Enhancements
Home Depot is also working to drive growth by opening about a dozen new stores this fiscal year and enhancing its online and in-store experiences. Despite the challenges, shares of Home Depot closed at $340.96 on Monday. So far this year, the company’s shares have declined by about 2%, compared to a roughly 9% gain for the S&P 500.
As Home Depot navigates these challenges, it remains focused on leveraging its strengths and strategic initiatives to bolster sales and maintain its position in the market.
