Home Depot Inc. posted better-than-expected third-quarter earnings early Tuesday, but said its customers were avoiding certain big-ticket items.
“The third quarter was in line with our expectations – similar to the second quarter, we saw continued customer engagement with smaller projects and experienced pressure in certain big-ticket, discretionary categories,” said Home Depot
HD,
CEO Ted Decker, during a conference call to discuss the results.
Consumers have been struggling this year with higher interest rates and inflationary pressures, that have some conserving cash for essentials. The housing market has been under pressure as rates have risen, leaving some unable to afford to take out mortgages.
The disruption of the COVID-19 pandemic has also cast a shadow over the retail sector.
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Speaking during the conference call, Decker said that Home Depot’s operations are increasingly getting back to normal. “The supply chain is operating very well, our inventory positions are better, our in-stock rates are much better,” he said. “The wage investments are paying off – our attrition is way down.”
“As we sit here, feeling really good about the operations, the share shift of PCE [personal consumption expenditures] from pre-COVID to today has not completely reverted,” said Decker, during the conference call. “And we’re still not exactly sure where that reverts to.”
“We know now that the Fed definitely has a ‘higher for longer’ monetary posture, and that’s going to continue to pressure durable goods, in financing or motivation for larger home improvement projects,” he added. “We’re looking at this year as a period of moderation for home improvement spend.”
The Atlanta-based home-improvement retailer
HD,
had net income of $3.8 billion, or $3.81 a share, for the quarter, down from $4.3 billion, or $4.24 a share, in the year-earlier period. Sales fell 3% to $37.7 billion.
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The FactSet consensus was for EPS of $3.75 and sales of $37.6 billion.
Same-store sales fell 3.1%, while FactSet was expecting a decline of 3.6%
The company narrowed its prior guidance for the full year and said it now expects EPS to fell 9% to 11% and for sales and same-store sales to be down 3% to 4%.
The FactSet consensus implies an EPS decline of 9.4%, and a sales decline of 3%.
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The stock rose 6.8%, and is down 2.6% to date in 2023, while the S&P 500
SPX,
has gained 17.1%.
D.A. Davidson analyst Michael Baker noted one bright spot in total comps that were 155 basis points better than the industry decline of 4.65%.
“This is the widest positive gap in HD’s favor since 1Q21,” he wrote in an early note to clients.
Baker also noted that the guidance brackets the consensus at the high end. “That does imply some downside to 4Q23 versus consensus, but while HD’s business trends clearly remain soft, this is likely no worse than most expected, and as a result we think the stock should act fine today.”
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