HD Earnings: Home Depot Beats Expectations, But Sales Outlook Falters

Home Depot delivered strong Fiscal second-quarter results, exceeding expectations for both earnings and revenue, but anticipates a challenging outlook ahead.

Home Depot (HD) made headlines with its Fiscal second-quarter earnings, surpassing expectations for both EPS and revenue. The home improvement giant reported earnings per share (EPS) of $4.60, surpassing the analysts’ consensus estimate of $4.53, and revenue of $43.18 billion, slightly beating the forecast of $43.06 billion. Despite these robust results, Home Depot’s sales outlook falters as the company braces for tougher times ahead.

Home Depot’s Sales Outlook Takes a Hit

The retailer has revised its full-year forecast downward, now predicting a decline in comparable sales of 3% to 4% compared to last year. This adjustment is a sharp deviation from the previous estimate of a 1% decline. Chief Financial Officer Richard McPhail attributed this shift to a growing “sense of greater uncertainty in the economy” among consumers. He noted, “Pros tell us that, for the first time, their customers aren’t just deferring because of higher financing costs. They’re deferring because of a sense of greater uncertainty in the economy.”

Home Depot Faces Sluggish Consumer Spending

Home Depot is witnessing a slowdown in consumer spending on home improvement projects. Demand for items like lighting and flooring has decreased, with fewer shoppers visiting stores and spending less when they do. Customer transactions fell nearly 2%, and the average ticket size dropped from $90.07 to $88.90. This trend is influenced by rising interest rates and economic uncertainty. McPhail commented, “Everything I read tells me interest rates will be lower in three to six months,” reflecting a common consumer hesitation to commit to major expenses.

Home Depot’s Future Outlook

Looking ahead, Home Depot’s outlook is mixed. For Fiscal 2024, total sales are projected to rise between 2.5% and 3.5%, boosted by the SRS Distribution acquisition and a 53rd week, which will add approximately $2.3 billion and $6.4 billion, respectively. However, comparable sales are expected to fall by 3% to 4% due to continued consumer caution. The company plans to open about 12 new stores and anticipates a gross margin of around 33.5%. Operating margins are forecasted between 13.5% and 13.6%, with adjusted operating margins expected to range from 13.8% to 13.9%.

Is HD Stock a Buy, Sell or Hold?

Analysts remain cautiously bullish about HD stock, with a Moderate Buy consensus rating based on 17 Buys, seven Holds and two Sells. Over the past year, HD has increased by 7%, and the average HD price target of $385.42 implies an upside potential of 11.9% from current levels.

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