Home Depot's Muted Outlook Could Indicate A Muted Macroeconomic Year Lies Ahead

By guiding for a year of moderation on the horizon, Home Depot HD could be indicative of more than a wind down in housing projects. If Lowe’s Companies Inc LOW reports a similar guidance on Tuesday morning, the two large construction retailers expecting a continued decrease in traffic and spending could serve as indicators that the macroeconomic climate will continue to weaken throughout 2024.

Home Depot Still Topped Estimates With Its Fiscal Fourth Quarter Results

For the quarter that ended on January 28th, Home Depot recorded its 11th straight quarterly decline as it reported sales decreased to $34.79 billion compared to 2022’s comparable quarter ($35.83 billion) but still topped LSEG’s estimate of $34.64 billion.

Net income also fell from 2022’s comparable quarter ($3.36 billion) to $2.80 billion or $2.82 per share.

Both the average ticket and customer transactions declined during the quarter.

A Slashed Estimate Due To Challenges Of The Housing Market

Home Depot has been facing the post-pandemic slowdown for a while now. During the two years that COVID-19 held people ‘hostage’ at their homes, Home Depot benefited as consumers spent more money to fix and beautify their households. Now, Home Depot isn’t only competing with outdoor experiences but also with persistent inflation that has weakened consumer’s buying power. With such a macroeconomic background, Home Depot faced a pullback in consumer spending, particularly when it comes to big-ticket items. Chief Financial Officer Richard McPhail also noted that high borrowing costs are discouraging consumers from taking loans for large-scale improvement projects. However, CEO Ted Decker emphasized that shoppers are still willing to spend, they are just opting for smaller projects. 

Lowe’s is expected to reported a drop in fourth quarter revenue tomorrow before market open, as well as a YoY bottom line decrease. Along with an unfavorable macroeconomic environment, Lowe’s is expected to report a negative impact from softness in the Do-It-Yourself (DIY) segment that makes about half to ¾ of its total revenue, along with challenges on the e-commerce front, as well as impacts of lumber deflation that bothered its average comparable ticket during the previous quarter, as well as intense competition. During the previous quarter, Lowe’s demonstrated resilience in on the Pro sales front and outlined its plans for improving the DIY segment and competitive positioning. 

 McPhail also noted that prices have been steady since August, while being lower than a year ago when Home Depot and its suppliers struggled increased costs of products and transportation.

After a year of post-pandemic moderation, Home Depot guides for a muted 2024.

Home Depot guided for another year of moderation with comparable 2024 sales 

declining about 1% but with slightly less challenges compared to 2023, while the second half of 2024 being marginally stronger. The timing of its return to growth remains a question mark. 

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