Home Depot lowers its expectations for the coming year

ATLANTA — With consumers cautious about spending, Home Depot on Tuesday trimmed its expectations for the coming year, while maintaining faith in the fundamentals of consumer finances.

The Vinings-based home improvement giant reported sales of $43.2 billion for the second fiscal quarter, an increase of 0.6% over the same period a year earlier. But that included $1.3 billion from the recently acquired SRS Distribution Inc.

High interest rates and a feeling of uncertainty about the nation's economic direction "pressured consumer demand," said Ted Decker, company chair, president and chief executive, in a statement Tuesday.

Sales of comparable operations were down 3.3% from last year, Home Depot said.

Net earnings for the second quarter were $4.6 billion, compared with $4.7 billion in the second quarter of 2023.

Many households cut back on home improvement projects that are a significant part of the company's business, Decker said.

It is true, he said, that most typical Home Depot customers are financially secure and — for all but the most recent home purchasers — owners have seen home values rise dramatically, he said. "The underlying long-term fundamentals supporting home improvement demand are strong."

But in the short-term, many companies and consumers alike are waiting for the Federal Reserve, which dramatically hiked interest rates in the past two years, to once again start cutting them.

The Fed left rates unchanged this month and, absent an emergency meeting, will next consider a rate change in September.

In the meantime, higher rates make borrowing more costly, whether for auto loans, mortgages or credit-card balances.

Home Depot, by revenues, the largest, Georgia-based company, said it expects sales to increase up to 3.5%, but that includes an extra week and the addition of SRS Distribution.

The extra week will add about $2.3 billion in sales, while SRS will add about $6.4 billion in sales, officials said.

However, sales in existing operations will see a decline of 3% — if consumer demand stays steady, Home Depot said. If consumers retreat more, sales could drop up to 4%, the company said.

The number of customer transactions was down, year over year, as was the amount that each spent on average, signs of a challenging environment, said Ana Garcia, a senior equity analyst at CFRA Research. "On a comparable sales basis, this is the seventh quarter in a row in which sales have been negative."

Home Depot's revenues surged in the first two years of the pandemic as American consumers shifted vast amounts of spending to goods and materials. With so many people putting in more time at home, much of that spending was on home improvement, either as do-it-yourselfers or by hiring contractors.

Either way, much of the money was spent at Home Depot.

However, the past two years have seen a dramatic switch of purchases from goods to services, forcing Home Depot to fight harder for each home improvement dollar. The company's revenues, peaking at more than $157 billion in 2022, were about $153 billion last year.

Premonition about the earnings announcement — and the initial news — depressed the stock price in pre-market trading, but shares rose during the day. By early afternoon, Home Depot was trading $352.80 a share, up from $340.21 at the market opening.

The company's high for the past 52 weeks was $395.20 a share, reached in March. Its low was in October, when shares dipped to just under $277.

Garcia, the CFRA analyst, said she doesn't recommend buying Home Depot stock, but believes that anyone with it should hold on to what they have.

Home Depot has more than 465,000 employees, the second-most of any Georgia-based company. They are scattered across all 50 states, the District of Columbia, several U.S. territories, Canada and Mexico.

Among Georgia-based firms, only UPS has more employees.

Home Depot has 2,340 retail stores and plans to open a dozen more in the coming year.