Home Depot Forecasts Smaller Drop in Sales

(Reuters) – Home Depot forecast a smaller drop in annual same-store sales on Tuesday, benefiting from resilient demand from professional contractors, as well as a lift from hurricane-related spending.

Shares of the top U.S. home improvement chain rose 2.7% in premarket trading after it posted better-than-expected quarterly results, signaling a rebound in demand amid expectations of a drop in mortgage rates.

CEO Statement

"As weather normalized, we saw better engagement across seasonal goods and certain outdoor projects as well as incremental sales related to hurricane demand," said CEO Ted Decker.

Hurricane Impact

Parts of southeastern U.S., including Florida, were battered by hurricanes at the end of September and early October, prompting panic-buying among Americans. Hurricane Helene devastated large areas in late September, followed by Hurricane Milton two weeks later.

Investor Sentiment

"As investors, we are cautiously optimistic on the near-term outlook for the category given hurricane rebuild demand, easing election uncertainties, and benefits from warmer weather," said Dave Wagner, portfolio manager at Aptus Capital Advisors.

Market Challenges

Home Depot (NYSE: HD) has battled choppy demand over the past two years, as sticky inflation and higher borrowing costs prompted customers to pause large-scale home remodels and focus on repair and maintenance activities around their existing homes.

Federal Reserve Influence

Investors are likely to analyze the post-earnings call for comments on the industry Outlook after the U.S. Federal Reserve started its interest-rate cuts. While these cuts are easing pressure on mortgage rates, they are also expected to reduce borrowing costs for homeowners looking to renovate properties to put up for sale, benefiting Home Depot and its peers.

Strategic Investments

Home Depot has also doubled down on its investments to appeal to the "pro" customer, including its $18.25 billion deal for SRS made in March.

Earnings Performance

The company posted a 1.3% decline in comparable sales, marking its eighth consecutive quarter of declines, compared with analysts' average estimate of a 3.25% drop.

It earned $3.67 per share, beating estimates of $3.64.

Future Expectations

Comparable sales are expected to fall 2.5% for fiscal year 2024, compared with its previous range of a 3% to 4% drop.