The CEO says “doubts remain” amid the Fed’s interest rate hike

The CEO says "doubts remain" amid the Fed's interest rate hike

The CEO of Home Depot (HD) raised concerns about the economy after issuing a cautious outlook.

The home improvement retailer posted a slight profit edge on Tuesday before the market opened up as consumers I spent less On expensive discretionary items such as appliances. In general, consumers seem to be less interested in home renovations than they used to be with much higher interest rates.

“We were pleased with the second quarter,[but]there are still uncertainties,” Home Depot CEO Ted Decker said on the earnings call. “We don’t know how quickly or how much the share shift in personal consumption expenditures will occur and where home improvement spending will eventually stabilize. We don’t know how monetary policy actions specifically aimed at discouraging consumer demand will, and what effect this will ultimately have on consumer confidence in the overall economy. “.

Two things are grabbing Wall Street’s early attention.

First, Home Depot same-store sales fell 2% amid declining shopper transactions. This is the third consecutive quarter of declining same-store sales for the Georgia-based retailer.

And secondly, the retailer reiterated its guidance for the full year despite skipping the second quarter.

The company expects full-year sales to decline between 2% and 5% compared to fiscal 2022. Diluted earnings per share is expected to decline between 7% and 13% compared to last year.

The guidance comes as the Federal Reserve raised its policy rate to a range of 5.25%-5.50%, the highest level since March 2001, in a bid to bring down inflation. Federal Reserve officials left the door open for another increase this year, which could hurt consumers further through borrowing costs and the housing market.

“With continued pressure in some large discretionary categories, Home Depot has taken a conservative approach (with guidance),” Evercore ISI analyst Greg Mellish wrote in a client note.

Home Depot shares were up about 2% in early trade.

Earnings summary:

  • Net sales: 42.92 billion dollars, compared to the expected 42.12 billion dollars

  • Diluted EPS: $4.46 vs. $4.45 expected

  • Same store sales: -2.0% vs -4.09% expected

  • Customer transaction growth: -1.8% vs -3.62% expected

  • Average ticket growth: Up by 0.1% vs. the expected rise of 0.56%.

  • Selling, general and administrative expenses: $6.92 billion. $6.86 billion expected

People shop at a lumberyard at a Home Depot store in Alhambra, California.

People shop for lumber at a Home Depot store in Alhambra, Calif., May 4, 2022. (FREDERIC J. BROWN / AFP via Getty Images)

What else we’re watching: Home spending and a $15 billion stock repurchase program

Home Improvement is struggling to regain the appeal it once had during the COVID-19 era when everyone was home.

“While there was strength in the categories associated with smaller projects, we saw continued pressure in some of the big-ticket discretionary categories,” Home Depot’s Decker said in the earnings report. launch.

Competitor Lowe’s (LOW), which is expected to report earnings next Tuesday, remained relatively flat Tuesday in pre-market trading after Home Depot’s lackluster results and outlook.

Home Depot’s board of directors also approved a $15 billion share buyback program, effective Aug. 15, in an effort to boost the share price.

First shot on Wall Street

“A similar decline in sales this quarter is better than feared relative to the Street forecast, which appears to have leveraged fixed cost expense beyond consensus models. Vendor commentary throughout the quarter highlighted Pro’s superiority over Do-It-Yourself, which is what Partly explains the superior performance. With this result, he was not surprised to see annual guidance reaffirmed.” Jefferies analyst Jonathan Matuszewski

“Some may be disappointed by keeping guidance unchanged despite a $0.20 beat on EPS and better-than-expected comp. However, with pressure still remaining in some big-ticket discretionary categories, HD has taken a conservative approach.” –Greg Milich of Evercore ISI

Home Depot had a good quarter – same-store sales by -2% beat Street’s estimate of -4.1% and came in just above market expectations of -2.5%, margins beat P&L, FY23 guidance was maintained. Our view, the cadence in the second quarter is inspiring confidence that the full-year guidance follows at least the mid-range of the range, especially given the smoothing of same-store sales comparisons in Q3 and Q4.We await further details on the conference call at 9 morning ET in relation to same-store sales cadence in the second quarter, demand trends for August, DIY performance vs. Pro performance in light of management’s comment on strength in smaller projects, and updated forecast for ticket vs. transactions for the second half. We reiterate the Buy rating.” – City Stephen Zakon

Brooke DiPalma is a correspondent at Yahoo Finance. Follow her on Twitter at @BrookeDiPalma Or email her at bdipalma@yahoofinance.com.

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