The dismal housing market weighs on Home Depot’s Q1 results

The news: Home Depot’s sales have fallen for six straight quarters thanks to elevated interest rates that are making consumers reluctant to buy a house, embark on a pricey renovation, or splurge on big-ticket items like appliances.

The numbers:

  • Earnings per share were $3.63 in FY Q1, down 5.0% year over year (YoY), but ahead of the $3.60 analysts surveyed by LSEG expected.
  • Revenues were $36.42 billion, down 2.3% YoY and short of the $36.66 billion analysts expected.
  • Comparable sales dropped 2.8% YoY, and fell 3.2% YoY in the US.
  • Transactions over $1,000 fell 6.5% YoY, which the retailer attributed to a pullback in discretionary spending.

The context: Home Depot is a tough category given that few consumers are moving or embarking on remodeling projects; those two circumstances are key drivers of its consumer-facing business.

  • The housing market is in a rut. Only 21% say it’s a good time to buy a house, which is tied for the worst reading in history, per a recent Gallup survey reported in CNN. That sentiment stems from a variety of factors including record-high home prices, limited inventory, and elevated mortgage rates.
  • Remodeling spending is trending downward. Two key metrics, the Leading Indicator of Remodeling Activity—a measure of home improvement and repair spending on owner-occupied homes—and NAHB/Westlake Royal Remodeling Market Index—a measure of remodelers’ sentiment about the market—show remodeling project demand weakening, per CNBC.

The strategy: With consumers pulling back, Home Depot aims to drive Pros to boost spending.

  • It is expanding its network of distribution centers and announced plans to buy SRS Distribution, a distributor of roofing, landscaping, and pool supplies, for $18.25 billion.
  • The strategy could help insulate Home Depot from future consumer-facing disruptions because Pros typically offer a steadier source of sales.

First Published on May 14, 2024

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