Early Tuesday morning, Home Depot Inc.’s stock hit a new high. This was after the home improvement store beat all of its earnings expectations for the third quarter and raised its guidance. But the CEO of the company said that rising interest rates are making people less likely to do home improvements.
The Atlanta-based Home Depot HD -0.70% had a net income of $3.6 billion, or $3.67 per share, for the quarter. This was less than the $3.8 billion, or $3.81 per share, it made during the same time last year.
After one-time things were taken into account, earnings per share were $3.78, which was higher than the $3.65 that FactSet predicted.
The sales number went up 6.6% to $40.2 billion, which was also more than the $39.310 billion target set by FactSet. FactSet thought that same-store sales would drop 3.1%, but they only fell 1.3%.
Before the market opened, the stock went up 2.6%, but at 11:39 a.m. Eastern time, it was down 0.7%.
As long as macroeconomic uncertainty persists, Ted Decker, chair, president, and CEO of Home Depot, said in prepared remarks, “Our third-quarter performance exceeded our expectations.” “As the weather got back to normal, we saw more interest in seasonal items and some outdoor projects. We also saw more sales because of demand from the hurricane.”
Decker said that interest rates are putting pressure on home repair demand during a conference call to talk about the results. “Today, these higher rates are putting pressure on bigger remodeling projects that are usually paid for with debt, as well as sales of existing homes,” he said. “Mortgage rates have gone up by about 60 basis points since the [interest rate cut] in September.”
“That keeps having an effect on housing turnover,” he said, adding that the current rate of about 3% is the lowest it has been in 40 years. “Our normal turnover rate is between 4.5% and 5%,” he said.
During the conference call, officials from Home Depot were also asked what they thought about President-elect Donald Trump’s plan to put new tariffs on goods. “My first thought is that whatever happens with tariffs will have an effect on the whole industry,” Decker said. “It won’t favor one retailer or distributor over another who is importing goods.” He also said, “There will definitely be an impact,” even though the company gets more than half of its goods from the United States and North America.
“This has been done before by our teams,” said Billy Bastek, executive vice president of fashion. “We think we’ll be able to handle any new tariffs in the same way we have in the past.”
It used to say that sales would grow between 2.5% and 3.5% per year, but now the company says they think they will grow about 4%. This fiscal year, the extra 53rd week is projected to add about $2.3 billion to sales.
It now thinks that same-store sales will drop about 2.5%, less than the 3% to 4% drop it had predicted before.
It thinks that EPS will drop by about 2%, which is less than the 2% to 4% drop that it had previously predicted.
To reach an operating margin of about 13.5% and a gross profit of about 33.5% in 2024, the company plans to open about 12 new stores. The operating profit was expected to be between 13.5% and 13.6% before.
There are now 2,345 Home Depot stores, up from 2,345 at the end of the third quarter.
So far this year, the stock has gone up 17.2%, while the S&P 500 has gone up 25.4%.
