Home Depot reports another quarter of soft earnings as potential rate cut comes into view
Home Depot (HD) reported another quarter of muted earnings as shoppers 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 to $43.79 billion expected, while adjusted earnings per share came in at $4.67, compared to estimates of $4.52.
Same-store sales declined by 3.3%, versus the 2.39% drop Wall Street expected. This marks Home Depot's seventh straight quarter of negative sales growth. US same-store sales are down 3.6%.
Both foot traffic and the average ticket dropped, down 1.8% and 1.3%, respectively.
The results came hot on the heels of a lackluster quarter and outlook from deck maker Trex (TREX) last week, which sent the stock into a tailspin.
UBS analyst Michael Lasser predicted that with the "noise that interest rates are going to come down," consumers are likely to hold off purchases even more, and that's what played out as consumers held off big projects.
"The underlying long-term fundamentals supporting home improvement demand are strong," Home Depot CEO Ted Decker said in the release, adding: "During the quarter, higher interest rates and greater macro-economic uncertainty pressured consumer demand more broadly, resulting in weaker spend across home improvement projects."
But interest rate cuts, the first of which is expected to come in September, could help with a turnaround.
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 lowers rates in September, "it doesn't mean sales pick up the next day," he said.
The company updated its fiscal 2024 guidance. It now expects total sales, including the 53rd week, to increase in the range of 2.5% to 3.5% year over year, up from the 1% previously expected.
Comparable sales are set to decline between 3% and 4% for the 52-week period compared to fiscal 2023, worse than the 1% drop previously expected.
The company said while comparable sales for the company aren't currently "on the trajectory" to decline 4%, that "implies incremental pressure on consumer demand."
Whirlpool (WHR) CEO Marc Bitzer told Yahoo Finance executive editor Brian Sozzi that it would take several rate cuts to restart momentum in the housing market. The company expects to see improvement in its business in Q3 and Q4.
As Yahoo Finance's Dani Romero reported, mortgage rates dropped to their lowest level since early February after the Federal Reserve set the stage for a September interest rate cut.
Rival Lowe's (LOW), which has a larger DIY customer base, is reporting earnings on Aug. 20 before the market open.
As the macro environment remains choppy, investors are optimistic about the pro side 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 complex pro, both organically through expanding foundational Pro Ecosystem capabilities to 17 markets by the end of 2024, and inorganically through SRS," Bank of America analyst Robert Ohmes wrote in a note to clients prior to the results.
The company shared that the acquisition is expected to contribute nearly $6.4 billion dollars in incremental sales in fiscal 2024.
Here's what Home Depot reported, compared to Wall Street estimates:
Revenue: $43.18 billion versus $43.79 billion
Adjusted earnings per share: $4.67 versus $4.52
Same-store sales growth: -3.30 versus -2.39%
US same-store sales growth: -3.60 versus -2.63%
Foot traffic: -1.80% versus -1.46%
Average ticket size: -1.30% versus -0.73%
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.