Home Depot warns of consumer spending declines in Q3 results

Home Depot (HD) narrowly beat third-quarter earnings estimates, while seeing a 3.1% drop in sales. Home Depot CEO Edward Decker characterized the home improvement chain as undergoing a "year of moderation" while warning on slowing consumer spending over big-ticket items and projects.

Yahoo Finance Senior Reporter Brooke DiPalma breaks down the biggest takeaways from Home Depot's earnings call, including the move to adjust sales and earnings forecasts to account for wider-than-expected full year declines.

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Video Transcript

RACHELLE AKUFFO: Shoppers downsizing to smaller projects have chipped away at Home Depot earnings. CEO Ted Decker saying the home improvement company experienced pressure among certain big ticket discretionary categories. So what are those items that consumers are spending less on? Yahoo Finances Brooke DiPalma has that answer for us. Hey, Brooke.

BROOKE DIPALMA: Good morning, Rachelle. Well, more than two years ago customers were splurging on it seems like just about everything, and now we've seen that come back a bit two years post pandemic. CEO Ted Decker is calling 2023 a period of moderation. Now, the company did beat expectations. Sales were down, though, 3/10 of a percent compared to last year, but that wasn't as low as Wall Street expected, which was down 3.31% year over year. Revenue also came in a bit higher than anticipated at $37.71 billion compared to estimates of $37.7 billion, and adjusted earnings per share came in at tick higher as well at $3.81, which was higher than analysts' expectations.

But while Home Depot is seeing what they say is the narrowest performance gap in some time between its two consumers, those DIY everyday customers and what they call pros, there's still a stark difference between just how much people are spending compared to last year, especially on those big ticket items. On the call Home Depot's executive vice president of merchandising weighed in. Take a listen.

BILLY BASTEK: Comp transactions or those over $1,000 were down 5.2% compared to the third quarter of last year. We continue to see softer engagement in big ticket discretionary categories like flooring, countertops, and cabinets. However, we saw big ticket strength in pro-heavy categories like roofing, insulation, and portable power.

BROOKE DIPALMA: But Halloween items did have a record year in sales for Home Depot both in store and online, and the company also said its performance in the first two weeks of Q4 are on track to achieve its full year 2023 guidance. Now, Home Depot did narrow that prior guidance range. The company now expects sales to drop between 3% to 4% compared to last year. Adjusted earnings per share are also expected to decrease 9% to 11% year over year as Home Depot really looks to find its footing here.

CEO Ted Decker did say on the call that it's looking to build a balance between growth and transaction volume and in ticket sizes, and this also comes at a time where there are higher interest rates weighing on consumers' abilities to finance their purchases, as well as lower commodity prices like in copper and lumber that ultimately did drive lower ticket sizes.

But Home Depot seems to be winning over Wall Street today. It is one of the top trading tickers on Yahoo Finance's website, and it's on track to see the biggest intraday gain in 11 months, and on pace for its largest percent increase since November of 2022, so certainly lots of excitement for Wall Street, but Home Depot has a long way ahead if we ever will see it get that uptick in those big ticket items once again like we saw a few years ago.

AKIKO FUJITA: Yeah, those interest rates always sort of creeping into the conversation, particularly around home renovation. Brooke DiPalma with the breakdown of Home Depot results. Thanks so much for that.