Home Depot’s
earnings and sales exceeded expectations in its fourth fiscal quarter despite cooling demand.
But the retailer’s outlook painted a mixed picture for the home-improvement business, sending some of its rivals’ shares lower Tuesday morning.
“After three years of exceptional growth for our business, 2023 was a year of moderation,” said CEO Ted Decker in a call with analysts Tuesday. That relative weakness will continue in 2024, albeit to a “lesser degree,” executives said.
“Higher interest rates at the beginning of 2024 relative to last year will likely continue to pressure demand for larger projects and the effects from pull forward of demand during the pandemic, as well as some project deferral, could impact demand into 2024,” said CFO Richard McPhail.
While
Home Depot
expects sales and earnings per share to each grow 1% over the current fiscal year, Wall Street analysts had been looking for a bit more. The consensus forecast among analysts tracked by FactSet is currently for per-share earnings growth of around 3%, and revenue growth of 1.5%.
This fiscal year, ending January 2025, contains 53 weeks, compared with 52 for fiscal 2024. Comparable sales are expected to fall 1% for the 52-week year.
Home improvement retailers have had a tough go of it lately. With mortgage rates still rising, people haven’t been too keen on buying new homes—or embarking on the expensive renovations that often accompany a purchase. That has translated to fewer sales for companies such as Home Depot and its peer Lowe’s.
Indeed, Home Depot’s sales for the three months ended Jan. 28 fell 2.9% from the same period a year earlier, while global same-store sales were 3.5% lower and same-store sales in the U.S. declined 4%. Full-year sales fell 3%—Home Depot’s first annual sales decline since 2009.
The home-improvement retailer reported quarterly earnings of $2.82 a share from sales of $34.8 billion. Analysts were expecting a profit of $2.77 a share from sales of $34.6 billion.
Home Depot raised its quarterly dividend to $2.25 a share from $2.09.
Shares of Home Depot were 0.2% higher at $362.16 in morning trading, reversing an earlier loss. Rival
Lowe’s
was off 0.7% and
Floor & Decor Holdings
was down 1.7%.
“We think the below consensus comp and EPS guide for 2024 may put some pressure on HD shares, as well as for LOW, which reports next week,” wrote D.A. Davidson analyst Michael Baker. Baker rates the stock at Neutral with a $344 price target.
Heading into the report, there were hopes that home improvement could be putting the worst behind it. For one, the sector’s busy season—spring and summer—is fast approaching, which could help boost sales. Plus, if the Federal Reserve lowers interest rates this year, as investors expect, that would certainly help bolster consumer demand, analysts said.
These factors have helped lift the stock. In the past three months, Home Depot shares have risen 18%, outperforming the
S&P 500’s
11% gain.
Home Depot’s guidance, however, confirms that the sector’s troubles aren’t over.
“HD shares have outperformed the past few months on growing optimism that declining rates will be a positive for home improvement demand in the [second half of 2024] and into 2025,” wrote Steven Zaccone, an analyst at Citi. “The modest 4Q SSS miss will be viewed as underwhelming.”
Zaccone rates the stock at Buy and has a target of $333 for the price.
Still, Home Depot’s management team struck an optimistic tone about the company’s long-term prospects. Executives pointed to trends that have long formed part of home-improvement bulls’ upbeat view on the industry, including home-equity appreciation and a shortage of new construction. The company also continues to gain market share among professional contractors, which has been an important revenue driver over the past couple of years.
“If anything, the underpinning of the market segment remains
incredibly strong,” Decker said.
Write to Sabrina Escobar at [email protected]
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