Home Depot surpasses earnings and sales forecasts amid shift to smaller home improvement ventures

Home Depot announced on Tuesday that its quarterly sales experienced a nearly 3% decline year over year. However, despite the cooler demand, the company managed to exceed Wall Street’s expectations in both earnings and revenue.

The home improvement giant stated that it anticipates total sales to grow approximately 1% in fiscal 2024, including an additional week. This projection contrasts with the 1.6% increase expected by analysts surveyed by StreetAccount. Additionally, Home Depot plans to open around a dozen new stores during the year.

During a call with CNBC, Chief Financial Officer Richard McPhail attributed the year-long dip in demand to consumers reverting to more typical spending habits. He highlighted that falling lumber prices and rising interest rates adversely affected the business.

Net income for Q4 drops to $2.80B
Net income for Q4 drops to $2.80B, with net sales down from the previous year.

McPhail expressed optimism about Home Depot’s prospects for returning to growth. He stated, “Our market is on its way back to normal demand conditions. We’re not quite there yet, but the pressures we saw in 2023 are receding.”

Here are the key figures reported by the company for the three months ended Jan. 28, compared with Wall Street’s expectations:

– Earnings per share: $2.82 vs. $2.77 expected
– Revenue: $34.79 billion vs. $34.64 billion expected

Home Depot experienced a slight dip in early trading on Tuesday.

Net income for the fiscal fourth quarter declined to $2.80 billion, or $2.82 per share, from $3.36 billion, or $3.30 per share, in the previous year. Net sales also decreased from $35.83 billion in the year-ago period.

Home Depot has encountered a challenging sales environment over the past year. The company benefitted from more than two years of increased consumer spending on home improvement during the COVID-19 pandemic.

However, it has since faced a pullback in consumer spending, particularly on significant purchases, as households deal with inflation and higher interest rates.

McPhail and CEO Ted Decker characterized 2023 as “a year of moderation” following the extraordinary gains during the pandemic. Approximately half of Home Depot’s business comes from professional contractors, with the other half from DIY enthusiasts.

CFO cites consumer spending patterns, lumber prices, and interest rates
CFO cites consumer spending patterns, lumber prices, and interest rates as impacting business.
3. Net income for Q4 drops to $2.80B, with net sales down from the previous year.

McPhail noted that customers are still delaying larger projects, especially those requiring financing, due to higher borrowing costs. Despite a decline in sales in January due to adverse weather conditions, he stated that this temporary setback did not affect the company’s outlook for the upcoming year.

Both average ticket and customer transactions decreased in the fourth quarter compared to the previous year. McPhail attributed the drop in average ticket size to a return to a more typical pricing environment.

Regarding pricing, McPhail mentioned that prices are currently lower than they were a year ago when Home Depot and its suppliers faced higher costs for products and transportation. He indicated that prices have remained steady since August, with expectations for them to remain at current levels for the foreseeable future.

As of Friday’s close, Home Depot’s shares were up nearly 5% for the year, in line with the gains of the S&P 500 during the same period. The company’s shares closed at $362.35 on Friday, resulting in a market value of approximately $360 billion.

Sajda Parveen
Sajda Parveen
Sajda Praveen is a market expert. She has over 6 years of experience in the field and she shares her expertise with readers. You can reach out to her at [email protected]
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