US consumers are not as interested in home renovation as they once were.
Home Depot (HD) posted a slight beat in its second quarter earnings report on Tuesday before the market open as consumers spent less on big-ticket discretionary items.
"While there was strength in categories associated with smaller projects, we did see continued pressure in certain big-ticket, discretionary categories," Home Depot CEO Ted Decker said in the release.
Home Depot reported revenue of $42.92 billion, slightly higher than analysts' estimates. This is now the third straight quarter of declining same-store sales for the Georgia-based retailer.
The usually-strong retailer also reiterated its full-year guidance.
Home Depot stock remained relatively flat on Tuesday in premarket trading following the results, with shares initially gaining slightly before reversing. As shares of Home Depot moved lower in premarket trading, down 0.35%, it appears investors were looking for more of an optimistic note of US consumers reversing changes in their spending behavior.
The earnings rundown:
Net sales: $42.92 billion vs. $42.12 billion expected
Diluted EPS: $4.46 vs. $4.45 expected
Same-store sales: -2.0% vs. -4.09% expected
US same-store sales: -2.0% vs. -3.64% expected
Customer transaction growth: -1.8% vs. -3.62% expected
Average Ticket Growth: up 0.1% vs. up 0.56% expected
Selling, general, and administrative expenses: $6.92 billion s. $6.86 billion expected
Last quarter, Home Depot sales dropped 2% compared to a year ago, driven lower by a decrease in transaction growth and a lower average ticket growth.
Home improvement has been struggling to regain the allure it once had during the COVID-19 era when everyone was homebound. Competitor Lowe's (LOW), which is expected to report earnings next Tuesday, remained relatively flat on Tuesday in premarket trading following Home Depot's results.
What else we're watching: Reaffirmed Fiscal 2023 Guidance and $15B share buyback
The company expects full-year sales to drop between 2% to 5% compared to fiscal 2022. Operating margin rate is expected to be between 14.3% and 14.0%. Diluted earnings per share are expected to drop between 7% and 13% compared to last year.
It expects a tax rate of approximately 24.5% and interest expense for the full year of around $1.8 billion.
Home Depot's board of directors also approved a $15 billion share repurchase program, effective August 15.
What analysts were saying pre-earnings:
"We are maintaining our [minus 2%] forecast for HD [sales]... This represents an improvement from 1Q’s 4.6% [loss] due to the 'bathtub effect' of spring weather shifting to 2Q, unusual events in 1Q that did not repeat (e.g., SVB, very unusual weather in California), and an estimated 2-pt lower headwind from lumber deflation.
"We estimated that HD was running down 2-3% QTD at the time of its May call with June and early July benefitting from lapping a mini-consumer shock last year when gas and food prices surged as well as increased occasion-based shopping behavior by consumers (i.e., July 4th), and a bump from AC sales given the onset of extreme heat in the US. Combined, this suggests July could be one of the strongest months of the quarter, perhaps around flat." - Christopher Horvers, JP Morgan
"Lumber prices sequentially stepped up during the quarter — in part due to seasonal trends & also likely in part due to Canadian wildfires compressing supply. ... HD had improving web traffic trends and we believe DIY might have seen some headwinds during 2Q.
"One additional consideration to note — 1Q featured a large legal settlement dispute (undisclosed amount) that benefitted both HD & LOW’s selling, general and administrative expenses, this one time factor may superficially indicate operating expenses acceleration in 2Q." - Greg Melich, Evercore ISI
This story is breaking. Please check back for updates.
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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