Home Depot Inc. earnings exceeded the average analyst estimate, suggesting that US home improvement spending is performing slightly better than expected following an unprecedented boom during the pandemic.
(Bloomberg) — Home Depot Inc. earnings exceeded the average analyst estimate, suggesting that US home improvement spending is performing slightly better than expected following an unprecedented boom during the pandemic.
Comparable sales, a key metric, fell 2% in the quarter, a smaller decline than analysts foresaw. Total customer transactions also fell from a year ago, while the average ticket, or the amount spent per transaction, rose slightly, indicating higher prices are still propping up Home Depot’s performance. That said, prices for lumber and other commodities are declining, which could drag down average ticket in the coming quarters.
“While there was strength in categories associated with smaller projects, we did see continued pressure in certain big-ticket, discretionary categories,” Chief Executive Officer Ted Decker said in a statement.
The shares rose 2.1% as of 9:33 a.m. in New York.
In May, Home Depot cut its outlook for the full year, citing a bad start to 2023 due to lumber deflation and poor weather that delayed or curbed purchases. The retailer said Tuesday that it still expects comparable sales to decline as much as 5% this fiscal year.
“We’ve looked at 2023 as a year of moderation,” Decker said during the company’s quarterly call with analysts. “Consumers would be shifting their spending from goods to services, and while that shift is happening, the overall economy and the consumer in particular have remained incredibly resilient.” He added that “fears of a severe recession have largely subsided.”
Even so, Chief Financial Officer Richard McPhail said there was softness in big-ticket items such as patio sets and large appliances.
Decker has remained confident that a shortage of housing in the US will drive longer-term sales for the home improvement category. He said in June that he is “super bullish” on housing and that it could take 10 years to get supply in line with demand.
What Bloomberg Intelligence Says
The company noted relative strength in smaller project categories, though saw continued pressure in big-ticket discretionary items, which have been a core growth driver. Despite near-term headwinds, Home Depot remains well positioned to gain share in a challenging market.
— Drew Reading, senior industry Analyst
Click here to read the research.
Home Depot is up against heightened efforts from Lowe’s Cos. to win over contractors — who are among the most lucrative customers. Lowe’s followed Home Depot by introducing a same-day delivery service for both professional and DIY customers.
“We remain very positive on the medium-to-long term outlook for home improvement and our ability to grow share in a large and fragmented market,” Decker said.
Earnings per share were $4.65 on a diluted basis in the second quarter ending July 30, above the average estimate compiled by Bloomberg. The board approved a $15 billion buyback program, replacing its previous authorization.
A separate report Tuesday showed that sales at US building materials and garden stores rose from the prior month, indicating some strength in broader home improvement spending toward the end of Home Depot’s second quarter.
The better-than-forecast quarterly result “was not entirely unexpected,” said Michael Baker, senior research analyst at D.A. Davidson.
“Comps were down again, but less so than last quarter as the business continues to recover,” he said.
Home Depot is the first of the major US big-box retailers to report second-quarter earnings. Target Corp. and TJX Cos. will release results on Wednesday, followed by industry benchmark Walmart Inc. on Thursday. Lowe’s results will be released next week.
–With assistance from Jonathan Roeder.
(Updates shares, with retail sales figures.)
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