Home Depot’s Sales Fall Short on Lackluster Housing Recovery

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(Bloomberg) — A key gauge of Home Depot Inc. sales missed expectations in the latest quarter as muted housing demand and high borrowing costs limited consumer spending on improvement projects.

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Sales at locations open at least a year rose 0.6% during the three months ended May 3, according to a statement, slightly below the average of analysts’ estimates compiled by Bloomberg. Earnings per share, excluding some items, beat expectations. 

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Home Depot’s business has been hit by elevated interest rates and high housing prices, which have sparked a pullback in home purchases and upgrade projects over the past three years. Instead of extensive remodels that require financing and large amounts of tools and materials, Americans are taking on smaller projects such as painting and gardening. 

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Home Depot’s shares were little changed during premarket trading on Tuesday. The stock has declined 13% this year through Monday’s close, compared with an 8.1% gain for the S&P 500 Index. 

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External factors may continue to pressure results: Following a brief dip in February, mortgage rates have risen in tandem with energy prices as the war in Iran creates new apprehension about inflation. Existing home sales have remained flat at the start of the important spring-selling season, while consumer sentiment has deteriorated. 

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Shoppers “continue to defer large projects. They have told us that they have a higher degree of uncertainty,” Chief Financial Officer Richard McPhail said in an interview. The retailer is closely monitoring higher fuel prices and mortgage rates, he said, though changes in spending habits haven’t materialized. It’s too early to determine to what extent prices of Home Depot products will increase from higher fuel costs, he added. 

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The company maintained its full-year guidance. Home Depot executives have previously said that mortgage rates would need to decline and income levels would have to rise in a more significant way for the housing market to pick up. 

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Underlying demand during the quarter was similar to last year, McPhail said. Garden items, patio grills and storage items were popular among everyday customers, while professional customers purchased power tools, water heaters and paint. 

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The Atlanta-based company has expanded its faster-growing business that caters to pro contractors, who often spend more than everyday customers. It also has sought to expand its digital operations and offered AI-assisted shopping. Competitor Lowe’s Cos. has pursued a similar strategy. 

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Home Depot has submitted claims for tariff refunds and has received an immaterial amount so far, McPhail said, adding that the company doesn’t expect repayments to create a “net benefit.” 

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Home Depot is kicking off a busy week of big-box earnings, with Lowe’s and Target Corp. scheduled to report on Wednesday, followed by Walmart Inc. on May 21. 

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(Adds shares in fourth paragraph)

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