On Aug 14, the U.S. Commerce Department reported a headline Consumer Price Index rate of 2.9% on Aug. 14, the slowest in over three years.
However, modest ticks higher in monthly price pressures and an in-line reading for the core inflation measure are testing bets on a 50-basis point Fed rate cut.
Last month, Dana Peterson, chief economist at The Conference Board, said in a statement that consumer confidence increased in July, “but not enough to break free of the narrow range that has prevailed over the past two years.”
“Even though consumers remain relatively positive about the labor market, they still appear to be concerned about elevated prices and interest rates, and uncertainty about the future, things that may not improve until next year,” he said.
The home improvement retail sector has faced economic hardship over the last two years, prompted by inflation, high interest rates, and the end of the Covid-19 pandemic.
LL Flooring filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware in Wilmington on Aug 11 seeking a sale of its assets, after suffering from broad headwinds in the housing, repair and remodeling markets that occurred when the Covid-19 pandemic subsided.
Analysts adjusted their price targets for Home Depot following the home improvement retailer's earnings report.
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Home Depot CEO cites 'macroeconomic uncertainty'
Home Depot (HD) , the world's largest home-improvement retail company, is also being slowed down by those headwinds.
While the Atlanta, Ga.-based company beat Wall Street's second-quarter earnings expectations, CEO Ted Decker told analysts that higher interest rates and greater macroeconomic uncertainty "pressured consumer demand more broadly, resulting in weaker spend across home improvement projects."
"When we look at the performance in the first six months of the year, as well as continued uncertainty around underlying consumer demand, we believe a more cautious sales outlook is warranted for the year," he said.
The home improvement big box retailer posted better-than-expected results for the quarter despite declining customer transactions and average ticket size.
Nevertheless, the company’s updated outlook calls for weaker-than-expected EPS growth and for its full-year comp sales to fall 3% to 4% year-over-year compared with 3.25% during the first half of the year. Previously, comparable sales were expected to decline by about 1%.
Billy Bastek, executive vice president of merchandising, said the company continued to see softer engagement in larger discretionary projects, such as kitchen and bathroom remodels, where customers typically use financing to fund the project.
“Pros outperformed the DIY customer, but both were negative for the quarter,” he said.
In June, Home Depot completed its acquisition of Texas-based building products distributor SRS for about $18.25 billion, and Decker said, "We are thrilled to welcome them into the Home Depot family."
"We are incredibly excited about what we can achieve together by leveraging our combined assets, capabilities, and competitive advantages," he said.
Home Depot reported adjusted earnings of $4.67 per share, compared with $4.68 per share year a year ago, beating FactSet expectations of $4.53 per share.
Revenue totaled $43.17 billion, up 0.6% from a year ago, and edging out Wall Street’s call for $42.57 billion in sales. Comparable sales declined 3.3%, with U.S. comparable sales down 3.6%.
Analyst: 'continue to stand aside'
TheStreet Pro’s Bruce Kamich, a technical analyst who has been evaluating markets for 50 years, advised caution regarding new buys of Home Depot in March.
This week, Kamich wrote, “Traders should have been on the sidelines of HD for a while now. Continue to stand aside.”
Based on a daily candlestick chart, Kamich calculated a price target of $313.
Several analysts issued reports on Home Depot following the earnings report.
Bank of America Securities’ analysts Robert Ohmes and Molly Baum reiterated their buy rating and $425 price target for Home Depot.
"While the macro remains choppy, we expect HD to see continued share gains as it accelerates growth and capabilities with the complex pro," the analysts said in a research note.
"We also believe a reduction in rates could support HD comps given weakness in larger discretionary projects where customers typically use financing (e.g. kitchen & bath remodels) and housing turnover," they said.
Following Home Depot's second-quarter report, Baird maintained an outperform rating and a $390 price target.
The firm said pressure on larger and financed project demand and an increasingly uncertain macro environment drove Home Depot's more cautious second half of 2024 outlook.
However, Baird said the company has several customer engagement-focused initiatives “in flight,” and the softer demand environment incentivizes the Federal Reserve to cut interest rates, sparking interest in home projects.
Loop Capital lowered the firm's price target on Home Depot to $330 from $360 and kept a hold rating on the shares.
The company reported a “disappointing” second quarter with a miss on same-store sales, while the management's outlook for [same store sales] SSS decline of 3%-4% is “much worse” than the prior outlook of down 1%, the firm said.
Loop added that while it is optimistic about Home Depot's announced acquisition of SRS, weaker DIY trends are offset by half of the $6.4 billion in incremental 2024 sales from the acquisition.
