Home Depot forecast a decline in annual profit and a bigger drop in its annual comparable sales on Tuesday (Aug 13), as tepid discretionary spending dashed hopes of a recovery in demand for home improvement projects.
Shares of the Dow component fell 4 per cent in premarket trading after the company also reported a bigger drop in comparable sales than expected for the second quarter.
“During the quarter, higher interest rates and greater macroeconomic uncertainty pressured consumer demand more broadly, resulting in weaker spend,” CEO Ted Decker said.
Customers delayed big-scale projects such as flooring, kitchen cabinets and bath to tackle steep inflation, even as higher mortgage rates and home prices hurt new homes sales.
Weak new home sales in May and June led to foot traffic dropping 0.4 per cent in July after a 4.3 per cent rise in June, according to data from Placer.ai.
Home Depot expects annual comparable sales to drop between 3 per cent and 4 per cent, compared with its prior view of a nearly 1 per cent decline.
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Comparable sales in the second quarter fell 3.3 per cent, steeper than expectations of a 1.98 per cent decline, according to LSEG data, while customer transactions fell 1.8 per cent, its 13th straight quarter of drop.
“…continued pressure on average ticket hurt sales a little bit, but ultimately it’s the volume number that’s a little bit more disappointing,” said John Tomlinson, global director of research at M Science.
The retailer expects diluted earnings per share to decline between 2 per cent and 4 per cent, compared with a prior forecast of a nearly 1 per cent rise. Adjusted earnings per share of $4.67 for the reported quarter was a tad below US$4.68 a year ago.
Shares of rival Lowe’s, which is expected to report results next week, fell 3 per cent before the bell. Retail bellwether Walmart will report earnings on Thursday.
“Depending on the type of retailer, you’re going to see more conservative viewpoints towards the back half of the year, given I think there is probably a softening in overall consumer demand,” Tomlinson said. REUTERS
