Home Depot sees key sales metric turning positive, lifting stock
Home Depot Inc. expects a key sales metric to return to growth this year, though the retailer cautioned that housing demand won’t change significantly in the near term.
The world’s biggest home improvement retailer said Tuesday comparable sales will rise 1% in the fiscal year through January 2026. That compares with the 1.65% average prediction among Wall Street analysts.
Despite sales guidance missing estimates, investors pushed the stock higher, with analysts pointing to a strong fourth quarter, including consumers spending slightly more per transaction, and cautious projections.
The full-year guidance is “appropriately conservative” and in line with other retailers, Bloomberg Intelligence analyst Drew Reading wrote in a research note. “A bigger bounceback in housing activity and big-ticket projects, which remain soft, will be needed for a more robust industry rebound.”
Home Depot’s shares rose about 3% at 10:15 a.m. in New York. The stock had gained about 3% over the past 12 months through Monday, trailing an advance of roughly 18% for the S&P 500 Index.
“While there are signs that the home-improvement market is on the way towards normalization, uncertainty still remains,” Chief Financial Officer Richard McPhail said on a call with analysts. In the near term, the company isn’t expecting to see meaningful changes to interest rates, housing turnover or the macroeconomic environment.
The company was one of the winners of the Covid-19 pandemic as Americans splurged on sprucing up their homes. But the chain’s growth disappeared when high interest rates slowed down spending on big projects that needed financing. Shoppers also shifted purchases to experiences and travel.
One response was to boost offerings for home-improvement professionals who typically work on bigger, more complex projects. This group is outperforming do-it-yourself customers. It also sealed a $18.25 billion deal last year for SRS Distribution Inc. - its biggest acquisition ever - to win over more pros.
New Normal
“We are in a period now where customers are beginning to see the rate environment as the new normal,” McPhail said in an interview, adding it remains to be seen how their mindset will shift.
While early, there’s been an uptick in housing activity and consumers are borrowing against their home equity, McPhail said, though he cautioned that it’s difficult to predict to what extent the market will rebound.
Home Depot didn’t include the impact of tariffs proposed by President Donald Trump in its guidance, similar to other big chains such as Walmart Inc. Home Depot forecast adjusted earnings per share for this fiscal year to decline about 2%.
The home improvement retailer has said it sources more than half its goods from North America. Trump plans to implement 25% tariffs on imports from Mexico and Canada next month. On the earnings call, executives said the company has navigated tariffs for years and has diversified its supply chain.
Turning Positive
The latest quarter, which ended in early February, showed signs of improvement as Home Depot’s comparable sales turned positive and grew 0.8%. That beat analysts’ estimates and ended a negative streak that ran for eight quarters.
Demand improved from the earlier period, McPhail said, adding that items like appliances and power tools sold well as did dry wall, lumber and other areas that tend to be important for professional customers. At the same time, larger home projects such as flooring and kitchens remain under pressure.
Retailers have entered the year amid lots of uncertainty. Consumers remain selective and cautious. Tariffs have the potential to reignite inflation.
The results at big chains help investors interpret the strength of consumers. Walmart’s shares slipped last week when the retailer’s profit forecast came in lower than expected. Home Depot’s rival Lowe’s Cos. is scheduled to report earnings on Wednesday.