Home Depot’s annual profit is expected to fall as demand for home improvement supplies falls. On Tuesday, the retailer forecast that full-year sales would fall due to increased borrowing costs.
As consumers grapple with inflation, home projects like bathroom renovations and flooring replacements are on hold. Higher mortgage rates and home prices have also slowed sales.
“During the quarter, higher interest rates and greater macroeconomic uncertainty put pressure on consumer demand overall, leading to lower spending,” Home Depot CEO Ted Decker said, according to Reuters.
While previous forecasts had predicted a 1% decline, comparable sales on an annual basis are likely to fall by 3% to 4%, according to the home improvement retailer. Diluted earnings per share are also expected to fall by 2% to 4%, after previously expecting a 1% increase.
In the fiscal second quarter, Home Depot reported a decline in net income to $4.56 billion from $4.66 billion a year earlier. Total sales fell 3.3 percent, with a 3.6 percent decline in the U.S. alone. This is the seventh consecutive quarter of negative numbers.
Customer transactions also declined 1.8% in the second quarter of 2024. According to Newsday, customers spent an average of $88.90 per order, down from $90.07 in the second quarter of 2023.
One possible bright spot, however, is Home Depot’s acquisition of supplier SRS Distribution. SRS is expected to increase total sales by 2.5 to 3.5 percent, which corresponds to sales of around $6.4 billion for the fiscal year.
A recent survey of Home Depot customers and home builders found that consumers are concerned about the economy, which is causing customers to hesitate to undertake major renovation projects.
“Professionals tell us that their customers are delaying their payments for the first time not just because of the higher financing costs,” Chief Financial Officer Richard McPhail said in an interview with CNBC. “They are delaying their payments because they feel the economy is more uncertain.”
While overall annual sales may decline, Home Depot is likely to weather the storm. Its customers tend to be financially stable and employed, and as these customers’ homes age, they will return and spend money on home improvement projects again.
