Home Depot Inc. (NYSE:HD) has adjusted its guidance to reflect a decline in this year’s profit and revenue, signaling a slowdown in home improvement demand. The company, which experienced robust growth between 2020 and 2022 as consumers undertook renovation projects during lockdowns, is now grappling with challenges such as elevated mortgage rates, a significant drop in home sales, and a shift in consumer spending toward travel and entertainment.
The guidance for 2023 was revised in August, anticipating a year of moderation as consumers redirect their spending to services. Analysts predict that both Home Depot and competitor Lowe’s Cos. will report their first simultaneous declines in revenue growth since 2010 in the current fiscal year.
While customers continue to invest in smaller projects, the company highlights pressure on big-ticket purchases. Home Depot’s CEO, Ted Decker, noted that the backlogs of professional contractors’ projects have decreased from the previous year, likely contributing to the weakness in higher-priced item sales.
The revised forecast indicates that same-store sales, a crucial metric for retailer performance, are expected to decline by 3% to 4% this year, with a trimming of one percentage point off each end of the range. Earnings per share are projected to fall between 9% and 11%, compared to a previous forecast of up to 13%.
In the quarter ending Oct. 29, comparable sales dipped by 3.1%, slightly better than analysts’ expectations of a 3.3% drop. Earnings per share, while slightly above forecasts, showed a decline from the previous year. Despite these challenges, Home Depot’s shares saw a 5.9% increase following the release of better-than-anticipated third-quarter sales and earnings results.
The decline in the average ticket, the amount spent per transaction, suggests that inflation is no longer providing support to Home Depot’s performance. A separate report on the same day indicated a general slowdown in U.S. inflation.
The company refrained from offering guidance for 2024. Analysts at Evercore noted that consensus estimates for 2024 might be overly optimistic for Home Depot and other home improvement-related companies. Despite economic challenges, Neil Saunders, Managing Director at GlobalData Plc, mentioned that Home Depot’s product offerings and customer service position the company well to weather the economic downturn and benefit once the economic cycle rebounds.
Home Depot is the first major U.S. retailer to report earnings for the third quarter, with Target Corp. and TJX Cos. scheduled to release results on Wednesday, followed by Walmart Inc. on Nov. 16.
Featured Image: Unsplash
Author Faith Yakubu 
