Yahoo Finance Home Depot undergoing a year of 'moderation', says CEO after earnings report
Home Depot (HD)'s earnings are downsizing as consumers pull back on their HGTV dreams.
The home improvement store reported Q3 earnings on Tuesday morning. Sales are down 3.10% year over year, though it wasn't as low as Wall Street's expected 3.31%.
Revenue came in a hair higher than anticipated at $37.71 billion, compared to estimates of $37.70 billion. Adjusted earnings per share were $3.81, compared to the $3.76 expected, while digital sales grew 5%.
Foot traffic dropped 2.4%, higher than the 1.27% expected, but the average ticket dropped less than expected, down 0.30% instead of 0.60%.
CEO Ted Decker said the company "saw continued customer engagement with smaller projects, and experienced pressure in certain big ticket, discretionary categories."
Compared to Q3 of last year, purchases over $1,000 are down 5.2%, as the housing market slows and consumers tighten their belts.
Categories like flooring, countertops, and cabinets are seeing "softer engagement," Billy Bastek, Home Depot's executive vice president of merchandising, said on a call with investors. On the other hand,"pro-heavy categories" like roofing, insulation, and portable power tools "saw big ticket strength."
Decker said Home Depot is seeing the "narrowest performance gap in some time" between pro and regular customers. Meanwhile, Halloween items had a record year in sales, both in store and online.
Shares of Home Depot popped roughly 6.3% in early trading. That's the biggest intraday gain in 11 months and is on pace for its largest percent increase since November 2022.
Year to date, shares are down nearly 3.1%.
For the full 2023 fiscal year, Home Depot narrowed its prior guidance range.
It now expects sales to drop 3% to 4% compared to fiscal year 2022; it previously expected a decline of 2% to 5%.
Adjusted earnings per share are expected to decrease 9% to 11% year over year, compared to previous guidance of 7% to 13%.
As Home Depot tries to find solid footing after the comedown from the pandemic renovation frenzy, it's looking to build a balance between growth in transaction volume and ticket size, Decker said. Higher interest rates are weighing on consumers' abilities to finance purchases; lower commodities pricing, driven by drops in lumber and copper, has resulted in lower ticket sizes.
Decker called 2023 a "period of moderation" on the call, adding that the team is confident in its "ability to navigate through this unique environment."
In terms of discounts, Decker said the chain plans to keep promotions around "Black Friday appliances, gift center, and some spring events for seasonal garden items to get traffic in store."
However, it has backed off of promotions of home improvement products like ceiling fans and paint, though it may adjust its stance if there were a "protracted downturn in the market."
In a note to clients, Goldman Sachs analyst Kate McShane, who has a Buy rating on Home Depot, outlined risks for the company, including the potential for sales growth to decelerate "if housing turnover slows meaningfully or if macro headwinds weigh on home improvement."
Increased competition causing pricing pressures and higher supply costs could also be concerns, added McShane.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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