Home Depot (HD) profits dwindle as consumers retreat from their HGTV dreams.
The home improvement store reported third-quarter earnings Tuesday morning. Sales fell 3.10% year-over-year, although not as low as Wall Street’s forecast of 3.31%.
Revenues came in higher than expected at $37.71 billion, compared to estimates of $37.70 billion. Adjusted EPS was $3.81, compared to $3.76 expected, while digital sales grew 5%.
Traffic fell 2.4%, higher than expected at 1.27%, but the average ticket fell less than expected, down 0.30% instead of 0.60%.
CEO Ted Decker said the company “has seen continued customer engagement in smaller projects, and has experienced pressure in some larger discretionary categories.”
Compared to the third quarter of last year, purchases over $1,000 fell 5.2%, as the housing market slowed and consumers tightened their belts.
Categories like flooring, countertops and cabinetry are seeing “softer share,” Billy Bastic, executive vice president of merchandising at Home Depot, said on a call with investors. On the other hand, “heavy pro categories” such as roofing, insulation and portable electrical tools “saw significant ticket strength.”
Home Depot is seeing its “narrowest performance gap in some time” between professional and casual customers, Decker said. Meanwhile, Halloween merchandise had a record year in sales, both in-store and online.
Home Depot shares rose nearly 6.3% in early trading. This is the biggest intraday gain in 11 months and is on track for its biggest percentage gain since November 2022.
Year to date, shares are down about 3.1%.
For the full 2023 fiscal year, Home Depot narrowed the scope of previous guidance.
It now expects sales to decline by 3% to 4% compared to fiscal 2022; It had previously expected a decline of 2% to 5%.
Adjusted EPS is expected to decline 9% to 11% year over year, compared to previous guidance of 7% to 13%.
As Home Depot tries to find a solid footing after retreating from the pandemic renovation craze, it is looking to build a balance between growth in transaction volume and ticket volume, Decker said. High interest rates affect consumers’ ability to finance purchases; Lower commodity prices, driven by lower lumber and copper prices, led to lower ticket volumes.
Regarding discounts, Decker said the chain plans to keep promotions around “Black Friday hardware, the gift center, and some spring events for seasonal garden items to drive traffic to the store.”
However, it has backed away from promoting home improvement products such as ceiling fans and paint, although it may adjust its stance if there is a “prolonged market downturn”.
In a note to clients, Goldman Sachs analyst Kate McShane, who has a buy rating on Home Depot, explained the risks the company faces, including the potential for sales growth to slow “if housing turnover slows significantly or if macro headwinds impact home improvement.” “. “
Increased competition causing price pressures and higher supply costs may also be a concern, McShane added.
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