Home Depot (HD, Financial) announced a more than 6% increase in sales for the third fiscal quarter, attributed to its recent business acquisitions, hurricane-related repairs, and favorable weather across many regions in the U.S., which boosted demand for home improvement products. The retailer also raised its full-year outlook, reflecting the better-than-expected performance.
The company now anticipates total sales growth of about 4%, including the impact of its acquisition of residential specialty trade distributor SRS Distribution. This is an increase from the previously expected growth of 2.5% to 3.5%. The guidance includes the extra sales from this year's 53rd week and approximately $6.4 billion contribution from SRS.
However, comparable sales are expected to decrease by around 2.5% over the typical 52-week period. Previously, Home Depot had forecasted a decline of 3% to 4% for this key industry metric, which includes online sales and stores open for at least a year.
Chief Financial Officer Richard McPhail highlighted that the retailer's forecasts reflect stronger performance in the last quarter. Yet, he noted that consumers continue to delay purchases as they wait for lower mortgage rates and lending costs, reflecting economic caution. This restrained demand, despite customers' good financial standing, is impacting sales. Approximately 90% of Home Depot's DIY customers own their homes.
The company’s sales have been affected by higher interest rates, which slowed home sales, and prolonged inflation, making homeowners hesitant about discretionary spending and DIY projects. Previously, Home Depot had downgraded its full-year comparable sales forecast, citing consumer uncertainty.
For the third quarter, net income fell to $3.65 billion from $3.81 billion the previous year, with earnings per share at $3.67, slightly above market expectations of $3.64. Revenue increased by 6.6% to $40.22 billion, beating analyst expectations of $39.32 billion.
Comparable sales across the business dropped by 1.3%, a milder decline than the anticipated 3.3% fall. In the U.S., comparable sales dropped by 1.2%. This quarter marked the eighth consecutive quarter of negative comparable sales, though it was the smallest decline since the trend began.
The frequency of customer visits to Home Depot stores and online remained consistent with the previous year, with average spending per transaction at $88.65, nearly identical to last year's $89.36. These figures exclude the impact of SRS and new store openings. Home Depot plans to open about 12 new stores by the end of this fiscal year.
Weather conditions provided short-term benefits as extended warm, dry weather led to increased sales of outdoor items like grills and project supplies like paint. Sales related to Hurricanes "Helen" and "Milton" contributed approximately 0.5% to the sales growth this quarter, with customers buying emergency supplies and repair materials post-disaster.
Despite modest growth this quarter, some investors anticipate stronger sales for Home Depot in the near future. The Federal Reserve recently announced its second consecutive interest rate cut, affecting consumer debt costs, including mortgages and home improvement loans. High home prices and aging U.S. housing stock continue to drive maintenance projects.
Additionally, Home Depot is capturing more market share from home professionals such as contractors and roofers. Earlier this year, it completed its largest acquisition by purchasing SRS Distribution for $18.25 billion.
McPhail cautioned that predicting when consumer sentiment will change to boost home sales remains challenging. He also mentioned that mortgage rates have actually increased since the Federal Reserve's September meeting.
"The good news is that home sales may not worsen further; the worst period of declining sales might be over. The question now is what will drive demand release and when it will occur?" he stated.
Although inflation is easing, Home Depot could still face price pressures next year, especially if former President Trump's plan to impose tariffs on imported goods, particularly from China, proceeds. McPhail did not specify how much of Home Depot's products are sourced from China but noted that most supplies come from North America, with Mexico being a significant source.
"We source from several Asian countries, and we are closely monitoring the situation," he stated, emphasizing a focus on diversified sourcing and future procurement decisions.
Recently, some retail leaders, including E.l.f. Beauty's CEO, indicated potential price increases due to tariffs. Footwear manufacturer Steve Madden plans to reduce Chinese imports by up to 45% next year.
Following the earnings report, Home Depot's stock rose approximately 2% in pre-market trading. As of the previous day's close, its stock price had increased roughly 18% this year, trailing the S&P 500 index's approximately 26% gain.
