Home Depot (HD) stock slipped Tuesday after its fourth quarter revenues beat expectations but full year guidance underscored ongoing challenges in the home improvement market amid sticky inflation and persistently higher mortgage rates.
HD’s Guide Looks Weak
The DIY chain said it expects total sales to grow by 2.8% in the year ahead, while comparable sales, which strip out the impact of one-time items like store openings and calendar differences, will grow by just 1%. Earnings per share for the Fiscal 2025 year are seen falling 2-3% from 2024.
Ted Decker, CEO of Home Depot, warned of “ongoing pressure on large remodeling projects” as higher interest rates impacted demand in the housing market.
HD has blamed problems on a stagnant housing market for nearly two years. Mortgage rates remain high despite rate cuts by the Federal Reserve, while house prices have risen, creating an affordability gap that sent existing home sales down steeply in January.
“Mortgage rates have refused to budge for several months despite multiple rounds of short-term interest rate cuts by the Federal Reserve,” said National Association of Realtors Chief Economist Lawrence Yun. “When combined with elevated home prices, housing affordability remains a major challenge.”
Subdued activity in the housing market is a problem for HD, while the Fed’s apparent desire to keep rates higher for longer may crimp consumers’ willingness to fork out on renovation work.
HD Q4 Earnings Beat, Just
Comparable sales for the fourth quarter of Fiscal 2024 increased 0.8%, ending eight straight quarters of declining same-store sales. It was also ahead of the expected decline of 1.7%.
Net earnings for the fourth quarter of fiscal 2024 were $3.0 billion, or $3.02 per diluted share, compared with $2.8 billion, or $2.82 per share, in the same period of fiscal 2023. However, an additional week in the fourth quarter of 2024 added approximately $2.5 billion sales and $0.30 to the EPS, indicating earnings declined on a comparable basis.
“Our fourth quarter results exceeded our expectations as we saw greater engagement in home improvement spend, despite ongoing pressure on large remodeling projects,” said Decker.
HD’s FY 2024
Sales for Fiscal 2024 were $159.5 billion, an increase of $6.8 billion, or 4.5% from the year before, however the impact of the extra week in the fourth quarter was noticeable as comparable sales decreased 1.8%.
Net earnings fell about $300 million to $14.8 billion. Adjusted diluted EPS of $15.24 was flat on the year before.
Is HD a Good Stock to Buy?
Overall, Wall Street has a Strong Buy consensus rating on HD stock, based on nine Buys and two Holds. The average HD price target – which may change after the earnings report – was $451.09, implying about 18% upside.
