A Home Depot store in Los Angeles, Calif., on March 17, 2015.Lucy Nicholson/Reuters
Home Depot HD-N sales were better than expected in the third quarter, bolstered by customers spending on plumbing and hardware for repair work and smaller projects, sending its shares up about 7 per cent on Tuesday in a “sigh of relief” rally.
Americans have put big renovations and discretionary home-improvement projects on the back burner after months of elevated inflation and interest rates.
That hurt sales of items like flooring, countertops and cabinets at the top U.S. home improvement retailer, driving big-ticket purchases, or transactions over $1,000, down 5.2 per cent in the quarter.
However, strong performance in categories like building materials, plumbing and hardware, as well as demand for new products like portable power stations, helped prop up spending at stores.
The sales beat was “a sigh of relief,” said Sarah Henry, managing director and portfolio manager at Logan Capital Management, which holds shares in Home Depot.
Despite expectations for sales declines next year, investors are “willing to wait a few quarters to see Home Depot resume growth again,” she said.
Comparable sales declined 3.1 per cent for the three months ended Oct. 29, smaller than the 3.31 per cent drop analysts expected, according to LSEG data.
Home Depot tightened its annual sales forecast range to a decline between 3 per cent and 4 per cent, compared with its prior forecast for a 2 per cent to 5 per cent decrease.
Customers’ average ticket, excluding the impact from lower lumber and copper prices, grew in the quarter, said Billy Bastek, Home Depot’s executive vice president of merchandising. Transactions were down 2.4 per cent.
Some big-ticket items like roofing and insulation typically sought after by “Pro-customers” like professional builders and contractors were also strong, executives said.
The company’s shares, which have underperformed the S&P 500 index this year with a 9 per cent decline through Monday’s close, also got a boost from cooling inflation data that sparked a broad-market rally. Shares were last up 6.7 per cent at $307.55.
“With continued pressure in certain big-ticket discretionary categories and a trend to smaller projects, HD took the conservative approach – which we agree with,” Evercore analyst Greg Melich said.
Home Depot now expects annual per-share profit to fall 9 per cent to 11 per cent, compared with a 7 per cent to 13 per cent slump estimated previously.