Home Depot Adjusts To Pre-Pandemic Consumer Behavior

This week’s earnings repertoire is led by Home Depot HD who reported today, along with Walmart Inc WMT, TJ Maxx parent company The TJX Companies Inc TJX and other high-profile retailers who will be releasing their quarterly results. Home Depot kicked off the retail earnings by beating both revenue and earnings estimates, with its shares rising less than 1% in premarket trading.

Home Depot’s Second Quarter Figures

Although it topped estimates, Home Depot’s revenue dropped 2% YoY to  $42.92 billion, topping estimates for the first time in three quarters that were now $42.23 billion. The resulting fiscal second-quarter net income amounted to $4.66 billion, which is lower than last year’s comparable quarter when HD made $5.17 billion. Earnings per share amounted to $4.65, topping the $4.45 that Refinitiv’s survey of analysts expected.

Observed Trends

Total customer transactions contracted approximately 2% YoY but the average ticket amounted to $90.07 and was roughly flat. Although U.S. and company-wide sales contracted by 2%, marking the third consecutive quarterly drop, it was still better than the 3.9% decline that Fact Set expected. 

Guidance

After previously lowering its outlook last quarter, Home Depot reiterated its muted full-year guidance despite the beat. The Atlanta-based home improvement retailer expects sales and comparable sales to drop between 2% and 5% YoY as the trends show that consumers are not keen of making big-ticket discretionary purchases.

Also, Home Depot CFO Richard McPhail noted that some consumers already made those large purchases before the pandemic. On a brighter note, transportation costs have dropped and supply chain disruptions faded into pandemic history.  McPhail stated that meaningful inflation is not expected during the remaining half of the year. But after three years of unusally strong demand owed to lockdowns, Home Depot is certainly facing a challenging sales backdrop as it returns to the pre-pandemic way of life. As for consumer behavior, McPhail stated that the typical amount spent per customer contracted however, the number of shopper transactions began to rise, also saying that HD’s typical customers are in good financial shape and still hiring contractors, just for smaller projects. 

Retail Earnings Don’t Only Speak Of Retailers

Also today, economic data that was released showed that U.S. retail sales rose 0.7% compared to June, topping analyst expectations. Excluding auto and gas, retail sales actually rose 1.0%, which is their largest gain over the last six months.

Therefore, this week’s retail earnings will also have plenty to stay about the state of the U.S. economy. Until now, economic dana has showed that consumers’ wallets are not at all closed. Home Depot’s trends also revealed that inflation seems to be cooling although deflation has not yet been seen, with the period being named as the time of ’price-settling’. 

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.