Home Depot cuts outlook as consumers stuck in ‘deferral mindset’

Home Depot Inc. lowered its forecast of a key sales metric for the year on expectations that consumers will continue to hold back spending in the coming months.

The retailer said it now sees comparable sales falling 3% to 4% for the year versus the previous expectation for a 1% decline across online sales and stores open at least a year. That was below the average analyst estimate compiled by Bloomberg. The company also expects adjusted earnings per share to be 1% to 3% lower for the year.

Against the backdrop of high interest rates and inflation, consumers have held off buying homes or pursuing bigger renovations that typically need financing. This pullback in spending has hurt Home Depot and other retailers, a reversal from the pandemic when people upgraded their houses.

“It’s simply a story of a deferral mindset among our customers who have the means to spend” but are waiting to do so until interest rates decline, Chief Financial Officer Richard McPhail said in an interview.

Consumers have shown more sensitivity to economic uncertainty as the year has progressed, hurting demand, he said. People are spending on paint and other smaller projects but remain on the sidelines for bigger, discretionary purchases including kitchen or bath remodels. Professional customers are outperforming do-it-yourself customers, McPhail added.

Home Depot shares fell 4.6% in premarket trading in New York. The stock is little changed year to date, while the S&P 500 Index has risen 12% as of Monday’s close. Shares of rival Lowe’s Cos. fell 2.6%.

The Atlanta-based company, which operates more than 2,300 stores, said comparable sales fell 3.3%, the seventh straight quarter of declines. That drop was worse than Wall Street’s expectations. Adjusted earnings per share of $4.67 came in above analysts’ estimates for the second quarter.

Consumer-product companies so far have posted weak results this season, as price increases slow and shoppers remain budget-conscious. The Federal Reserve has signaled it may start cutting interest rates next month, but that won’t immediately lift sales for Home Depot and other retailers that are set to release earnings in the coming weeks.

In the meantime, Home Depot has been investing in areas of the operation that can help the company gain long-term market share: professional business, supply chain and digital.

During the latest quarter, Home Depot closed its acquisition of building products provider SRS Distribution for about $18 billion. The deal will expand the company’s footprint with professional contractors who work on pricier constructions than do-it-yourself projects – a lucrative market its smaller competitor Lowe’s is also chasing.

Fundamentals of the business remain strong and the company will continue to invest, McPhail said, adding that homeowners are unlikely to change their view on what’s important to them regardless of the outcome of the upcoming US election.