home depot The company lowered its full-year profit forecast on Tuesday, missing Wall Street’s profit estimates for the third consecutive quarter, due to weak demand for home improvement, weak consumer spending and weak storm activity.
The company said it now expects full-year sales to increase by about 3%, and that comparable sales, which exclude the impact of one-time factors such as store openings and calendar differences, are expected to be slightly positive. This compares with previous forecasts for full-year sales to increase 2.8% and comparable sales to increase 1%.
The revised outlook includes an estimated $2 billion increase in revenue from GMS, the building materials distributor that Home Depot acquired earlier this year. The company’s sales were not included in the previous full-year forecast.
Home Depot now expects full-year adjusted earnings per share to decline about 5% from the same period last year, compared with previous expectations of a decline of about 2%.
In an interview with CNBC, Chief Financial Officer Richard McPhail said the retailer had previously expected home improvement activity to increase. It also expected sales of roofing materials, generators and other supplies typically sold before and after seasonal storms to increase.
Neither force has materialized, he said, putting pressure on businesses.
“When we set our guidance, we expected demand to start accelerating gradually in the second half of this year as interest rates and mortgage rates ease,” he said. “But what we saw was that continued consumer anxiety and continued pressure on housing had a disproportionate impact on demand for home improvements.”
Here’s how Home Depot reported in its fiscal third quarter compared to Wall Street expectations, according to a survey of analysts by LSEG.
Earnings per share: $3.74 adjusted vs. $3.84 expected Revenue: $41.35 billion vs. $41.11 billion expected
Home Depot stock fell about 2% in premarket trading Tuesday. As of Monday’s close, the company’s stock had fallen about 8% since the beginning of the year. This is lower than the S&P 500’s 13% rise over the same period.
For Home Depot, customers typically renovate their homes before and after they move, leading to higher home turnover and larger, more profitable projects. But these large projects have become less frequent as rising interest rates have pushed up mortgage rates and made it more expensive for homeowners to take out loans that could be used to pay for kitchen renovations or major additions.
MacPhail told CNBC that homeowners are in a “procrastination mindset” starting in mid-2023. That leaves Home Depot in a bit of a limbo, waiting for either lower mortgage rates or for consumers accustomed to higher mortgage rates as the new normal to shift.
The waiting game continued over the last three months. MacPhail told CNBC that demand was “steady” from the second to third quarter of the fiscal year, adjusting for the absence of hurricanes.
However, he added, “At this point, it is difficult to identify short-term catalysts for acceleration.”
Home Depot’s net income for the three months ended Nov. 2 was $3.65 billion, or $3.62 per share, down from $3.65 billion, or $3.67 per share, in the same period last year. Revenue decreased from $40.22 billion in the same period last year.
Average ticket value, the amount a customer typically spends in-store or on the company’s website, increased 1.8% year-over-year in the quarter. However, customer transactions decreased by 1.6% year-on-year.
A bright spot in the quarter was online sales, which rose 11% from a year earlier, MacPhail said.
Compared to other major retailers, Home Depot customers tend to be more financially stable. About 90% of do-it-yourself customers own their own homes, and home professionals who shop in retail stores tend to be hired by homeowners.
Still, Mr. MacPhail said Home Depot’s weak outlook is partly due to the reluctance of shoppers of all income levels to take on big-ticket projects. He said a slowing housing market and rising borrowing costs were contributing to this trend.
He said other factors could also be having a chilling effect on the economy, including a prolonged government shutdown, more companies announcing layoffs and falling home prices in some markets.
The company is trying to attract more business from contractors, roofers and other professionals as do-it-yourself customers postpone large projects.
The company made two major acquisitions of professional companies. Last year, the company acquired Texas-based SRS Distribution for $18.25 billion, the largest acquisition in its history. The company sells materials to landscaping, pool and roofing professionals. Earlier this year, Home Depot announced it would acquire GMS.
Like other retailers, Home Depot is feeling the pinch as tariffs raise the price of some imported goods. MacPhail said in May that the company was diversifying its sourcing countries and intended to “generally maintain current price levels across the portfolio.”
But company executives warned in August that the company may have to raise prices in some categories due to higher tariffs.
MacPhail told CNBC that Home Depot has increased prices on some items, but “if there has been a price change, it has been modest.”
He said Home Depot was able to keep prices the same or even lower prices on some key items. For example, he said the best-selling 7.5-foot Grand Duchess Christmas tree and many of the tree lights have gone down in price.
