TLDR
- Home Depot reported third-quarter earnings of $3.74 per share, missing analyst expectations of $3.84, marking its third consecutive quarterly miss.
- The retailer downgraded full-year earnings guidance, now expecting a 5% decline in adjusted EPS compared to previous estimates of a 2% drop.
- Comparable sales rose just 0.2% last quarter as high mortgage rates between 6% and 7% kept the housing market stagnant and homeowners delayed renovation projects.
- Customer transactions declined 1.6% year over year, though average ticket prices increased 1.8% as consumers across income levels avoided large-scale projects.
- Reduced storm activity in the quarter decreased demand for emergency supplies like roofing materials and generators that typically drive sales during severe weather.
Home Depot shares fell more than 3% in premarket trading Tuesday after the retailer posted its third straight earnings miss. The company reported adjusted earnings of $3.74 per share for the fiscal third quarter, falling short of the $3.84 Wall Street consensus.
Revenue came in at $41.35 billion, slightly topping expectations of $41.11 billion. The stock has declined roughly 8% year to date, underperforming the S&P 500’s 13% gain over the same period.
The company slashed its full-year profit outlook following the disappointing quarter. Home Depot now projects adjusted earnings per share will fall 5% from the prior year. That marks a downgrade from its previous forecast of a 2% decline.
Full-year sales are expected to grow about 3% with comparable sales slightly positive. The updated guidance includes $2 billion in incremental revenue from GMS, a building products distributor acquired earlier this year.
Mortgage Rates Keep Homeowners Sidelined
CFO Richard McPhail blamed the weak results on persistent consumer uncertainty and housing market pressure. Mortgage rates have hovered between 6% and 7% for an extended period, freezing home sales and turnover.
When homeowners buy and sell properties, they typically undertake major renovation projects. That activity has largely disappeared. Customer transactions dropped 1.6% year over year in the third quarter, though the average ticket rose 1.8%.
McPhail said the company expected demand to pick up in the back half of the year as interest rates eased. That rebound never happened. Homeowners have remained in what he calls a “deferral mindset” since mid-2023, postponing big-ticket remodeling work.
Shoppers across all income levels are holding back on expensive projects. Around 90% of Home Depot’s DIY customers are homeowners, making them particularly sensitive to housing market conditions.
Weather Patterns Add Pressure
Lower storm activity last quarter created another headwind. Home Depot typically sees strong demand for roofing materials, generators and plywood before and after major weather events. The absence of hurricanes and severe storms removed that sales boost.
Net income fell to $3.60 billion, or $3.62 per share, from $3.65 billion, or $3.67 per share, in the year-ago quarter. Revenue decreased from $40.22 billion in the prior year period.
McPhail pointed to additional factors weighing on consumer confidence. These include the prolonged government shutdown, increased corporate layoffs and declining home values in certain markets.
Professional Segment Offers Growth
Online sales provided one positive note, climbing 11% year over year. The company has been pushing to expand its professional contractor business through strategic acquisitions. Last year’s $18.25 billion purchase of SRS Distribution and this year’s GMS acquisition both target the pro market.
Tariffs on imported goods have created cost pressures, with nearly half of inventory coming from international suppliers. McPhail said price increases have been implemented but remain “modest.” Some items, including the popular seven-and-a-half foot Grand Duchess Christmas tree and light strings, have actually decreased in price.
McPhail told investors he sees no clear near-term catalysts for demand acceleration. Comparable sales inched up just 0.2% last quarter after adjusting for calendar differences and new store openings.
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