Home Depot (HD.N) has projected its full-year results for the year below analysts’ estimates, indicating a continuation of sluggish demand as consumers tighten their belts amidst persistent inflationary pressures.
The company anticipates that customers, grappling with elevated food prices and borrowing costs, will limit their expenditure on home improvements to essential repairs and maintenance rather than undertaking larger-scale renovations.
According to Placer.ai data, foot traffic at the leading U.S. home improvement retailer experienced a decline in the fourth quarter, exacerbated by adverse winter weather conditions, particularly towards January.
Home Depot’s Chief Financial Officer, Richard McPhail, acknowledged the prevailing challenges in the home improvement market, stating, “We are planning for a year of continued moderation but with slightly less pressure on sales than what we faced in fiscal 2023.”
CEO Ted Decker expressed cautious optimism, suggesting that the latter half of 2024 might witness marginal strength.
However, Home Depot foresees a 1% decline in comparable sales for 2024, contrary to analysts’ expectations of a 0.06% rise, as indicated by LSEG data. Consequently, the company’s shares experienced a 1% decrease.
Sarah Henry, Managing Director and Portfolio Manager at Logan Capital Management, noted, “I’m not overly alarmed by the guidance… the timing of (recovery) is the big question mark.”
She highlighted the resilience of the consumer backdrop, referencing retail giant Walmart’s upbeat annual sales forecast.
Despite this, Home Depot recorded a 1.7% decrease in fourth-quarter transactions, marking the eleventh consecutive quarterly decline, while comparable sales saw a larger-than-expected drop of 3.5%.
Jonathan Reid, a director at Fitch Ratings, remarked, “There was an expectation… that the company could return to growth sooner than they’re guiding to.”
Home Depot’s projection of approximately 1% growth in per-share earnings for 2024 falls short of the anticipated 3.62% rise.
Concurrently, shares of Lowe’s (LOW.N), set to report results the following week, also experienced a 1.5% decline.
Michael Baker, an analyst at D.A. Davidson, characterised the forecast as “not a big red flag… it’s a little yellow flag.”