Home Depot breaks same-store sales slump in US housing market that remains stressed

ATLANTA - Home Depot broke a two-year slump in same store sales during the fourth quarter.

It comes as customer demand improved in a housing market that has been buffeted by soaring mortgage rates and a scarcity of homes up for sale.

The backstory:

Home Depot has been navigating a challenging landscape in the U.S. housing market, which has been in a slump since 2022. The downturn began as mortgage rates climbed from pandemic-era lows, leading to a decrease in sales of previously occupied homes. In January, sales fell 4.9% from December, reaching a seasonally adjusted annual rate of 4.08 million units, according to the National Association of Realtors. Despite a wider selection of properties, rising mortgage rates and prices have deterred many potential homebuyers. Home prices have increased for 19 consecutive months, with the national median sales price rising 4.8% in January from a year earlier to $396,900.

What we know:

Home Depot broke a two-year slump in same-store sales during the fourth quarter, as customer demand improved despite the challenging housing market. The Atlanta-based company's revenue climbed to $39.7 billion from $34.79 billion, surpassing analysts' expectations of $39.15 billion. An extra week in the quarter contributed approximately $2.5 billion in sales, although this was not included in the same-store sales results. Sales at stores open for at least a year, a key indicator of a retailer’s health, edged up 0.8%, with U.S. comparable store sales rising 1.3%. This marks the first quarterly increase since January 2023, outperforming Wall Street's anticipated 1.5% decline.

What they're saying:

Neil Saunders, managing director of GlobalData, noted, "The fact that US comparable sales are back in the black after declining for eight quarters or two years is a very clear win for Home Depot, and it suggests that the home improvement market as a whole might finally be reaching the nadir of its more sluggish performance." Home Depot's Chair and CEO, Ted Decker, stated, "Our fourth quarter results exceeded our expectations as we saw greater engagement in home improvement spend, despite ongoing pressure on large remodeling projects."

By the numbers:

Home Depot earned $3 billion, or $3.02 per share, for the three months ended Feb. 2, compared to $2.8 billion, or $2.82 per share, a year earlier. Excluding certain items, earnings were $3.13 per share, surpassing Wall Street's forecast of $3.04 per share. Customer transactions rose 7.6% in the quarter, with the average ticket amount increasing slightly to $89.11 from $88.87 in the prior-year period. Shares climbed more than 3% in midday trading.

What's next:

Looking ahead, Home Depot anticipates a decline in per-share earnings of about 2% this year, with sales growth projected at approximately 2.8%. Decker highlighted that fewer people are moving and are delaying repairs and remodels at their current homes. He noted, "Our surveys over the prior several months, more than cost of project and higher rates, the #1 issue that people were citing in our surveys were general macroeconomic and even political uncertainty." Home improvement retailers like Home Depot continue to contend with homeowners postponing larger projects due to higher borrowing costs and inflation concerns.