Shares of Home Depot Inc. (HD) dropped over 3% in pre-market hours on Tuesday after the retailer missed fiscal Q3 profit expectations and issued a weak outlook, as lower storm activity reduced demand. The company now expects its full-year adjusted earnings per share (EPS) to fall about 5% from last year, down from its previous forecast of a 2% decline.
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For context, Home Depot is a U.S. home improvement retailer, offering building materials, tools, appliances, and services to both professionals and DIY customers.
Home Depot Misses Estimates for Third Straight Quarter
In Q3, Home Depot reported adjusted EPS of $3.74, missing analysts’ estimate of $3.84, and marking its third consecutive quarter of earnings misses.
On the bright side, Home Depot’s Q3 revenue came in at $41.4 billion, slightly above the expected $41.18 billion. This was also up 2.8% year-over-year. Meanwhile, comparable sales grew just 0.2% overall and 0.1% in the U.S.
Looking ahead, the company now expects total sales to grow around 3%, with comparable sales expected to be slightly positive for the full year.
Why Home Depot Struggled in Q3
Home Depot cited a weak housing market and soft consumer demand as key factors behind its weak performance. Home Depot’s CEO, Ted Decker, said the results fell short mainly because of fewer storms this quarter, which put pressure on certain product categories. He further stated that the overall demand stayed mostly stable, and the expected seasonal increase didn’t materialize.
Overall, home sales usually drive bigger, more profitable projects for Home Depot, as homeowners renovate before or after moving. However, these large projects have become less common because higher interest rates have made mortgages and loans more expensive, reducing spending on major renovations like kitchen remodels or home additions.
The company is now in a bit of a waiting game, hoping for either lower mortgage rates or for consumers to adjust to higher rates as the new normal.
Is Home Depot Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on HD stock based on 19 Buys and seven Holds assigned in the past three months. The average HD price target of $440.42 per share implies 23% upside potential.
These ratings and price targets will likely change as analysts update their coverage following today’s earnings report.
