Home Depot stock dips on Q4 sales declines, weak outlook

Tue, Feb 20, 2024, 7:51 AM

SEANA SMITH: Well, the other Dow component reporting earnings results this morning, it's Home Depot. Shares trading here to the downside, off just about 2.5%. Now this is the fifth quarter in a row that Home Depot posted revenue declines. The home improvement companies comp sales falling 3.5% from a year ago, also forecasting a 1% decline in fiscal 2024. You're seeing some of that concern being reflected in the share price here this morning, off just about 2.5%.

But Brad, my two takeaways from this report was the reading on the consumer. Very similar to what we saw or what we are seeing from some of those other larger retailers. The fact that the consumer is being a bit cautious at this time, thinking twice, being a little bit more selective about their spending. That was reflected in the average ticket sales here declining more than expected here for Home Depot. And then the second, this also highlights some of the challenges for the housing sector right now.

We talk about the fact that higher rates. We've seen a drop in demand for remodeling, for home construction. And we're seeing that reflected in these results from Home Depot today.

BRAD SMITH: Yeah. And it also reflects a more tepid Home Depot I would say, as well. Of course in our channel chats going into this show, we were looking at the inventory levels here going into that important selling season for the spring here, when everybody is ramping up the lawn and getting all of those projects lined up. Perhaps to get outdoors and work on a few more DIY projects. All those things considered, the inventories are well off of where they were this time last year perhaps spells out more conservative Home Depot.

You also saw more of the fiscal sales decreases. Sales for fiscal 2023, you saw that decrease by about 3%. And then Comp sales they were also down by about 3.2%, in the US, 3.5%. So all these things considered, it's a larger question of what that inventory pickup will actually look like from the consumer level. If you've got a lawn mower, you probably don't need another one. That eTor-- or not eToro-- that Toro or that John Deere is probably working just fine. And ultimately, you don't need 17 grills. You just need two maybe at some places.

SEANA SMITH: Yeah. Well, right. And that kind of points to the fact that, right, how long is this type of tepid growth environment or more challenging type of environment likely to stick around here when it comes to Home Depot, when it comes to so many of these names that are very reliant on consumer spending. And yes, this report highlights a number of challenges facing the company, facing the industry. But Wedbush was one of the names that actually came out ahead of these results last month, upgrading the stock to outperform on that expectation that a rebound in the industry, in the environment right now, they see as likely here going forward.

They are optimistic just about solid wage growth, homeowner spending power from continued home price appreciation. So they do expect that the consumer will return, will start spending once again on remodeling homes, but it's going to be a challenging couple of quarters here for Home Depot.

BRAD SMITH: You mentioned an interesting stat when we were sitting at our desks out this morning here and from Torsten Slok about the number of people that actually aren't moving right now, or at least the small percentage that are. And that all considered, I mean, it really comes back to how that impacts Home Depot. Where some of the consumers, even if they are moving less, where they're going to look across, kind of, the home and say, OK, yeah, we can fix that up or get ready to put it on the market. It doesn't seem like that is really kind of going to be a dam that breaks at least as of right now unless we see a dramatic cut in interest rates.

SEANA SMITH: Yeah, exactly. I think so many people, what is it, 80% of homeowners? 70% to 80% of homeowners are locked in to rates of 4% or below, 5% or below I believe. So when you take a look at the fact that you have mortgage rates right around 7%, if you're locked into a much lower mortgage rate, your monthly payments are a fraction of what they would be if you are moving. You're not going to move. So you would likely ultimately spend on remodeling at some point, if you're going to stay in that house. But as you can tell from Home Depot's numbers, at least that spend isn't happening right now with rates high.

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