Home Depot Predicts Profit To Fall as Consumers Put Projects on Hold

Home Depot’s annual profit is likely to decline as demand for home improvement falls. On Tuesday, the retailer projected that full-year comparable sales will drop as borrowing costs have increased.

With consumers battling inflation, home projects like remodeling bathrooms and replacing flooring are being put on hold. Also, higher mortgage rates and home prices have helped stunt sales.

“During the quarter, higher interest rates and greater macroeconomic uncertainty pressured consumer demand more broadly, resulting in weaker spend,” said Home Depot CEO Ted Decker, per Reuters.

While previous forecasts predicted a 1% drop, annual comparable sales are more likely to fall by 3% to 4%, according to the home improvement retailer. Diluted earnings per share are also likely to fall by 2% to 4%, which were previously expected to increase by 1%.

In the fiscal second quarter, Home Depot saw net income drop to $4.56 billion, from $4.66 billion a year ago. Overall sales decreased by 3.3%, and a 3.6% decline was reported for the U.S. alone. This is the seventh consecutive quarter of negative numbers.

Also dropping in Q2 2024 were customer transactions, down 1.8%. On average, customers spent $88.90 per order versus $90.07 in Q2 2023, according to Newsday.

However, a potential bright spot is Home Depot’s purchase of supplier SRS Distribution. An increase of 2.5% to 3.5% in total sales is expected from SRS, which includes about $6.4 billion in sales for the fiscal year.

A recent survey of Home Depot customers and contractors revealed that consumers are worried about the economy. As a result, customers are holding off on major renovation projects.

“Pros tell us that, for the first time, their customers aren’t just deferring because of higher financing costs,” Chief Financial Officer Richard McPhail said during an interview with CNBC. “They’re deferring because of a sense of greater uncertainty in the economy.”

Even though annual sales may decline overall, Home Depot will likely weather the storm. Its customers are typically financially stable and employed. As these customers’ homes are aging, they will be back and spending on home improvement projects once again.