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Home Depot loses revenue as high interest rates hurt sales – NBC Los Angeles

  • Home Depot reported first-quarter earnings that beat expectations and revenue that missed estimates.
  • The home improvement retailer is seeing its customers postpone major home projects due to high interest rates.
  • Home Depot is focusing more on building its business with professionals, including through the acquisition of SRS Distribution.

Home Depot on Tuesday posted quarterly revenue below Wall Street expectations as shoppers postponed larger discretionary projects, such as bathroom and kitchen remodels, due to higher interest rates and delayed spring shopping.

Still, the home improvement retailer reaffirmed its full-year guidance, which includes an additional week from a year ago. It said it expects total sales to grow about 1% in fiscal 2024, including those additional days. However, the retailer said it anticipates comparable sales, which exclude the impact of store openings and closings, will decline about 1%, excluding that additional week.

In an interview with CNBC, Chief Financial Officer Richard McPhail said customers are in a waiting game that began in the second half of last year as they responded to rising mortgage rates. He said the company anticipated those trends would continue.

“The home improvement customer is very healthy financially,” he said. “And so it’s not about not having the ability to spend. What they’re telling us is that they’re just putting off these projects because, given the higher rates, it just doesn’t seem like the right time to do them.”

Here’s what the company reported during the three-month period ending April 28. Compared to what Wall Street expected, according to a survey of analysts by LSEG:

Earnings per share: $3.63 vs. $3.60 expected

Revenue: $36.42 billion vs. $36.66 billion expected

Fiscal first-quarter net income fell to $3.6 billion, or $3.63 per share, from $3.87 billion, or $3.82 per share, in the year-earlier period. Net sales fell 2.3% from $37.26 billion.

Comparable sales fell 2.8% in the fiscal first quarter across the business and declined 3.2% in the U.S.

Home Depot shares fell nearly 2% in premarket trading.

Home Depot is facing a tougher real estate environment, which has decreased demand for DIY projects. About half of Home Depot’s sales come from DIY customers and the other half comes from professionals such as roofers and landscapers.

As interest rates remain high, consumers have been reluctant to move out of their homes and into new ones, the kind of turnover that often inspires real estate projects. Higher interest rates have also affected the desire for larger-scale projects that may require financing. Over the past few quarters, Home Depot has seen its customers purchase fewer big-ticket items and take on more modest projects, a trend that persisted in the most recent quarter.

In the fiscal first quarter, customers made fewer visits to Home Depot’s stores and website and tended to spend less when they did. Customer transactions decreased 1% to 386.8 million and the average ticket fell 1.3% to $90.68.

Home Depot has seen sales moderate after more than two years of explosive demand during the Covid pandemic. The company posted its worst revenue loss in nearly two decades and cut its forecast in the first quarter of last year. Home Depot’s sales totaled $152.7 billion in the fiscal year that ended in late January, a drop of 3% year over year.

Inflation may also be playing a role in that decline, as consumers spend more money on essentials and have to make trade-offs when spending discretionary income.

However, McPhail said Home Depot is not seeing customers switching to cheaper items, such as power tools or less expensive appliances. He attributed the company’s lower sales largely to consumers’ “delay mentality” and a housing market that has slowed dramatically.

“When we’ve seen mortgage rates decline slightly, as we saw earlier this quarter, real estate turnover seems to respond quickly and sharply in a positive direction,” he said. “And so we think it’s an indicator that there is a tremendous amount of pent-up demand for household formation and home renovation and the larger projects that are associated with home renovation.”

The weather also put pressure on sales in the last quarter, he said. Spring is the biggest sales season for home improvement retailers, including Home Depot. However, customers delayed outdoor shopping due to colder, wetter weather in many parts of the country, he said.

Those spring purchases have started to pick up as the weather improves, he said.

To overcome the sales slowdown, the home improvement retailer has accelerated its strategy to attract professionals, as they tend to buy larger quantities and offer a more stable source of sales. Home Depot has a growing network of distribution centers across the country that can stock and deliver roofing shingles, insulation and other supplies directly to job sites. In late March it announced it would acquire SRS Distribution, a Texas-based specialty distributor of roofing, landscaping and pool supplies, for $18.25 billion in the largest acquisition in the company’s history.

McPhail said the deal is still on track to close this fiscal year, which ends in early February.

In addition to courting professionals, Home Depot is trying to drive growth by opening about a dozen new stores this fiscal year and adding features to improve its online and in-store experience.

Home Depot shares closed Monday at $340.96. So far this year, Home Depot shares have fallen about 2% compared to the S&P 500’s gains of about 9%.