Home improvement demand rebounds, Home Depot, Inc. (HD.US) beats Q3 expectations, raises full-year performance guidance.

Home Depot, Inc. (HD.US) stated on Tuesday that the company's third-quarter sales increased by over 6% compared to the same period last year, driven by the company's new acquisitions, hurricane-related repair work, and better weather in many areas of the United States, all of which boosted demand for home improvement products. Additionally, the retailer raised its full-year outlook to reflect better-than-expected performance. The company now expects total sales to increase by approximately 4%, including the impact of the acquisition of residential professional trade distributor SRS Distribution, compared to its previous expectation of 2.5% to 3.5%. This guidance includes the performance of the 53rd week of the fiscal year and the contribution of about $6.4 billion from SRS. The retailer anticipates a decline of approximately 2.5% in comparable sales over a 52-week period. Home Depot, Inc. had previously forecasted a decrease of 3% to 4% for the industry metric (including company website and stores open for over a year). Chief Financial Officer Richard McPhail stated in an interview that the company's forecast reflects a stronger performance in the previous quarter. However, he mentioned that consumers are still delaying purchases as they wait for mortgage rates and borrowing costs to decrease and are cautious about the economy. "They are putting projects off," he said. "Our customers are telling us that their lives are changing. Some households are getting better. They are upsizing or downsizing. They need to move, look for jobs, have remodeling needs, some are deferring projects until they see more favorable financing environment. So the demand is there, the question is, when will it be unleashed." He mentioned that Home Depot, Inc.'s customers continue to delay projects despite their good financial condition. Around 90% of the company's DIY customers own their homes. Home Depot, Inc.'s sales have been impacted by economic factors as higher interest rates have slowed down housing transactions and over two years of high inflation have made homeowners less inclined to purchase non-essential items and DIY projects. In August, the company lowered its full-year forecast for comparable sales due to consumer uncertainty. McPhail stated that these dynamics have continued in the recent months. In the third quarter, Home Depot, Inc.'s net profit decreased to $3.65 billion from $3.81 billion in the same period last year, with earnings per share at $3.67 compared to $3.81 in the previous year. However, this figure was still above the market's expectations of $3.64. Revenue increased by 6.6% to $40.22 billion from $37.71 billion in the same period last year, exceeding analysts' expectations of $39.32 billion. Comparable sales for the entire business decreased by 1.3% in the quarter, but performed better than analysts' expected decline of 3.3%. Within that, comparable sales in the U.S. market declined by 1.2%. This marks the eighth consecutive quarter of negative growth in comparable sales for Home Depot, Inc., although it is the smallest decrease since the series of declines began. The number of consumer visits to Home Depot, Inc. stores and online purchases remained consistent with the same period last year. On average, customers spent $88.65 in these transactions, nearly the same as the $89.36 average spent in the previous year. These figures do not include the impact of the SRS acquisition and new stores. Home Depot, Inc. expects to open approximately 12 new stores this fiscal year (ending in early February next year). McPhail stated that favorable weather brought short-term benefits to Home Depot, Inc. during the quarter. He noted that the warm and dry weather extended the summer, leading customers to purchase outdoor items like grills or buy paint for projects. Sales related to hurricanes "Helene" and "Milton" contributed to approximately 0.5 percentage points of sales growth in the quarter. Customers purchased preparations like generators, batteries, and plywood, followed by purchases of repair materials like building supplies. Besides weather factors, the holiday season also boosted Home Depot, Inc.'s sales. Optimistic Outlook Although Home Depot, Inc.'s growth in the quarter was lukewarm, some investors are betting on stronger sales for the company in the near future. The Federal Reserve announced a second consecutive rate cut last week, determining rates that banks charge for consumer debt like mortgage rates and loans for renovation projects. High house prices and aging inventory in the U.S. housing market continue to drive maintenance and renovation projects. Additionally, Home Depot, Inc. is capturing more market share from home professionals like contractors and roofers to drive sales. Earlier this year, Home Depot, Inc. made its largest acquisition in history with the $18.25 billion purchase of SRS Distribution. However, McPhail added that it is difficult to predict when consumers' attitudes will change and drive an increase in housing transactions. He also pointed out that since the September Fed meeting, mortgage rates have actually increased. "The good news is, housing transactions may not get any worse. The worst period of decline in housing transactions may be behind us. The question now is, 'what will drive that demand release, and when will it happen?'" Furthermore, despite cooling inflation, Home Depot, Inc. may face price pressures in the coming year. If the new president, Trump, implements his plan to impose tariffs on imported goods, especially from China, Home Depot, Inc. could be one of the retailers facing rising costs. McPhail declined to disclose how much of Home Depot, Inc.'s merchandise comes from China, but he mentioned that the majority of their supply comes from North America. He also noted that Mexico is "an important source of our goods."Several Asian countries are procuring, so we are closely monitoring," he said, "Over the years, we have been focused on diversifying procurement, and we will continue to evaluate future procurement decisions."Some retail industry leaders, including the CEO of E.l.f. Beauty, recently stated that they may have to raise prices due to tariffs. Shoe manufacturer Steve Madden said it plans to reduce imports from China by up to 45% next year. Following the release of financial reports, before the opening of the US stock market on Tuesday, Home Depot, Inc. stock rose by about 2%. As of Monday's close, Home Depot, Inc. stock has risen by about 18% this year, lagging behind the S&P 500 index's increase of about 26%.