As expected, demand for home improvement products remains low. Home Depot (HD, Financial) reported a 3.3% decline in comparable sales, missing analysts' expectations. The company also revised its FY25 revenue and comp guidance downward. Both Home Depot (HD) and Lowe's (LOW, Financial) face challenges from high interest rates, a slow housing market, and economic uncertainties, which deter consumers from making large purchases.
- In Q2, foot traffic and average ticket declined by 1.8% and 1.3%, respectively. Home Depot (HD, Financial) forecasts FY25 comps to decline by 3-4%, down from the previous guidance of a 1% decline.
- Despite beating Q2 EPS estimates, Home Depot (HD) cut its FY25 EPS guidance. The company now expects EPS to decrease by 1-3%, compared to the previous outlook of a 1% drop. This reduction is due to the $18.25 billion acquisition of SRS Distribution in March, which is expected to be dilutive to GAAP EPS.
- Conversely, Home Depot (HD) raised its FY25 revenue guidance, now expecting growth of 2.5-3.5%, up from 1%, due to the SRS Distribution acquisition.
- The acquisition of SRS Distribution will enhance Home Depot's (HD) Pro business, giving it exposure to larger, more complex projects. This move aims to counter Lowe's (LOW, Financial), which has been expanding its Pro business. Lowe's (LOW) is set to report its Q2 results on August 20, with muted expectations following Home Depot's (HD) performance.
- Shares of Home Depot (HD) and Lowe's (LOW) have remained stable despite the soft results and guidance, partly due to tempered expectations. The market is also looking forward to potential rate cuts by the Fed, which could boost the home improvement retail market. Lower rates would make large projects more affordable and encourage homeowners to sell, often requiring home improvements.
The main takeaway is that Home Depot (HD) is currently facing challenges, but the long-term outlook remains positive. The home improvement category is fundamentally healthy, and Home Depot (HD) has the potential to gain market share as it integrates the SRS Distribution acquisition.
