Home Depot narrowed 2024 guidance early Tuesday after beating earnings and sales estimates for the third quarter. Home Depot stock fell in a buy area.
The home improvement store giant is now guiding a 1% decline in adjusted earnings per share for the full year vs. its prior forecast for a 1%-3% drop. The company also slightly hiked sales outlook though consumers remain cautious, Home Depot CFO Richard McPhail said. Shoppers are still delaying purchases as they wait for mortgage rates and borrowing costs to go lower, he told CNBC.
Telsey Advisory Group retail analyst Joe Feldman called the guidance encouraging. "Overall, we believe the business is bottoming and has upside from here on out, as comparisons ease," he said in a note to clients, with rating and price target under review. Fed rate cuts should spur demand down the line, Feldman added.
The Home Depot earnings report tees off the big-box retail earnings season, with investors closely watching the state of consumer health after three years of inflation.
Lowe's and Walmart are due on Nov. 19. Target is on deck Nov. 20 and BJ's Wholesale Club follows on Nov. 21.
Home Depot Earnings Far Better Than Feared
Early Tuesday, the Atlanta-based retailer reported Q3 adjusted earnings of $3.78 per share, on revenue of $40.22 billion, an overall beat.
Year over year, Home Depot earnings fell 0.8% while sales rebounded 6.6%. Analysts were projecting a 4% EPS decline and a 4% sales rebound, according to FactSet.
Home Depot posted the second consecutive quarterly sales gain after five quarters of declines. Further, Q3 sales accelerated sharply from 0.6% growth in the second quarter.
Comparable store sales fell 1.3% in Q3, with a 1.2% slip in the U.S. That marked the eighth consecutive same-store sales decline. The last time the Dow Jones retailer recorded a same-store sales increase was Q3 2022.
Home Depot recently acquired SRS, which sells and distributes landscaping, roofing and pool supplies.
"As weather normalized, we saw better engagement across seasonal goods and certain outdoor projects, as well as incremental sales related to hurricane demand," Home Depot CEO Ted Decker said in the Q3 earnings release.
But the Home Depot chief warned on Tuesday that "macroeconomic uncertainty remains." For the full year, management now expects a 1% earnings decline on a 4% sales increase, including SRS and a 53rd week in the year. The company previously guided a 1%-3% EPS drop for the full year and a 2.5%-3.5% sales comeback. Going into the Q3 report, Wall Street was forecasting a 0.9% EPS decline for the full year and a 3.2% revenue gain.
Last year, Home Depot's earnings sank almost 10% and sales fell 3%.
Home Depot Stock Dips In Buy Area
The home improvement retailer's stock lost 1.3% on the stock market today. Home Depot stock is in a buy zone on a rebound from 10-week support.
The stock has made uneven progress from a September breakout past a 378.58 cup-with-handle buy point, according to MarketSurge.
Lowe's and BJ's retreated on Tuesday, but Target and Walmart rose.
Double Whammy For Home Improvement Retailers
Home improvement companies face a double challenge: higher mortgage rates and financing charges, as well as greater economic uncertainty.
The average 30-year mortgage rate remains above 6% — and is likely to stay that way for a while. Steep interest rates and high financing charges forced many consumers to defer home purchases and renovation projects.
Nevertheless, a still-strong economy and economic uncertainty are combining to keep interest rates high. Now, investors are worried about the impact of the incoming Trump administration's tax and tariff plans.
Despite two Federal Reserve rate cuts this year, president-elect Donald Trump's economic policies could reignite inflation and worsen the deficit, while boosting consumer spending, experts say.
