Home Depot delivered better-than-expected third-quarter results on Tuesday, hinting at a potential stabilization in consumer spending after a prolonged downturn in the home improvement sector. Revenue for the Atlanta-based retailer climbed 6.6% year-over-year to $40.22 billion, beating Wall Street forecasts of $39.31 billion, according to FactSet. The positive performance prompted the company to raise its full-year revenue outlook, citing strong demand for seasonal goods and hurricane-related repairs.
"While macroeconomic uncertainty remains, our third-quarter performance exceeded our expectations," said Ted Decker, Home Depot's chair, president, and CEO. "As weather normalized, we saw better engagement across seasonal goods and certain outdoor projects as well as incremental sales related to hurricane demand."
Same-store sales, a key barometer of retail health, fell 1.3% globally and 1.2% in the U.S.-a marked improvement from the previous quarter's steeper declines. Neil Saunders, managing director of GlobalData, highlighted the significance of this trend, noting, "Home Depot is still experiencing a modest revenue decline of 1.2% in its U.S. business. While this comes off the back of a decline in the prior year, it is the shallowest rate of decrease in two years and sends a positive signal that Home Depot may finally be reaching the bottom of its long sales slump."
Customer transactions were flat compared to the same period last year, while the average transaction value dipped slightly to $88.65 from $89.36. The decrease underscores ongoing challenges, as high mortgage rates and inflation continue to push homeowners to defer larger projects.
"There is pent-up demand for projects," said Richard McPhail, Home Depot's chief financial officer, in an interview with CNBC. "Our customers tell us that their lives are changing. Their families are growing. They're upsizing, they're downsizing. They need to move for a job. There is demand for remodeling, and they are putting it on hold until they see a more favorable financing environment."
The U.S. housing market's slump has weighed heavily on Home Depot, with existing home sales dropping 1% in September to the slowest annual pace since October 2010, according to the National Association of Realtors. Despite these challenges, McPhail expressed cautious optimism, stating, "The good news is housing turnover may not be able to get any worse."
To bolster its business, Home Depot has leaned into its professional customer base, including contractors and builders. Earlier this year, the company completed its largest-ever acquisition of SRS Distribution, a supplier of roofing and building materials. This strategic move has supported sales growth and strengthened Home Depot's position in the pro market.
In light of its strong quarterly results, Home Depot revised its full-year guidance upward. The company now expects overall revenue growth of approximately 4%, up from its previous forecast of 2.5% to 3.5%. Same-store sales are projected to decline around 2.5%, a more modest drop than earlier estimates. Earnings per share are expected to decrease by roughly 2%, with adjusted earnings per share down by about 1%.
Weather played a notable role in boosting third-quarter sales. Warmer and drier conditions extended the summer season, driving demand for outdoor items such as grills and paint. Additionally, hurricanes Helene and Milton spurred purchases of emergency supplies like generators, batteries, and plywood, contributing about half a percentage point to sales growth.
Despite a challenging macroeconomic environment, Home Depot's stock has remained resilient. Shares are up approximately 18% this year, closing Monday at $408.29 and giving the company a market value of $405.55 billion. However, this performance still trails the broader market's gains.
Looking ahead, Home Depot is keeping a close eye on potential price pressures, particularly if President-elect Donald Trump moves forward with tariffs on imported goods, including those from China. While McPhail declined to specify the company's exposure to Chinese imports, he emphasized efforts to diversify sourcing. "Mexico is a great source of goods for us," he said.
The holiday season also offers a boost, with Home Depot capitalizing on its popular line of seasonal décor, including viral hits like the 12-foot skeleton "Skelly" and other oversized holiday items. "I don't think there are many neighborhoods in the U.S. that don't have our Home Depot giant outdoor decor," McPhail remarked.
