Home Depot Faces Fifth Consecutive Sales Decline Amid Weak Demand

Home Depot Stock

Home Depot Inc. (NYSE:HD) has reported a fifth consecutive decline in comparable sales, indicating a waning demand for home improvement products amidst high mortgage rates and a slowdown in construction activity.

Despite a slight decrease in mortgage rates since reaching a 23-year high in October, the lingering impact continues to hinder home sales and construction projects. The recent data for January revealed a significant drop in new-home construction, marking the largest decline since the onset of the pandemic. This suggests that any resurgence in housing demand will likely be postponed until borrowing costs decrease further.

In the fiscal fourth quarter, comparable sales dipped by 3.5%, as announced by Home Depot on Tuesday. While this was slightly better than the 3.6% decline anticipated by analysts before the report, it aligns with the Commerce Department’s recent findings, highlighting a notable decrease in retail sales at building materials stores.

Neil Saunders, an analyst at GlobalData Plc, attributed part of the decline to a persistent shift away from home-related spending by consumers. However, he also noted that unfavorable economic conditions are contributing to the downturn. Nevertheless, there are indications that the housing market may experience a modest recovery in 2024.

Despite the disappointing sales figures, Home Depot’s stock only fell by 1.3% in early trading. Since the beginning of the year, the stock has gained 4.6%.

Looking ahead, the retailer anticipates a roughly 1% decline in comparable sales for the current year, showing an improvement from the previous year but falling short of analysts’ expectations. According to Home Depot’s executive vice president of merchandising, Billy Bastek, consumers are still investing in smaller home projects but are delaying larger purchases.

Chief Financial Officer Richard McPhail acknowledged the ongoing challenges facing the business, stating that they are preparing for a year of continued moderation.

Despite the current weaknesses, analysts maintain confidence in Home Depot’s long-term prospects. Wedbush Securities upgraded their rating of the retailer from neutral to outperform in January, citing a rebounding industry environment fueled by robust employment, wage growth, and homeowner spending power.

Meanwhile, Walmart Inc., which also released results on Tuesday, reported positive same-store sales growth in the fourth quarter. However, the company expects softer full-year growth compared to the previous year due to uncertainties surrounding consumer demand for discretionary purchases.

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