Home Depot’s quarterly sales fell 3% from the same period last year, but beat Wall Street expectations as customers cashed in on smaller projects and home repairs.

The retailer expressed caution about the coming months and reduced its full-year outlook. The company now expects revenue to fall 3% to 4% year-over-year, compared to earlier expectations of a decline of 2% to 5%. Home Depot expects earnings per share to fall 9% to 11%, compared to a previous forecast of a decline of 7% to 13%.

In an interview with CNBC, Chief Financial Officer Richard McPhail said the company’s results and forecasts reflect that the year is “a time of moderation in home improvement.”

“A customer who may have remodeled their entire home may decide to do a partial remodel,” he said. “Maybe they won’t remodel their entire kitchen. Maybe they just do the countertop and backsplash. So it’s really just downsizing of projects that we’ve seen.”

Here’s what the retailer reported for its fiscal third quarter ended Oct. 29 compared to Wall Street’s expectations, based on an analyst survey by LSEG, formerly known as Refinitiv:

  • Earnings per share: $3.81 vs. expected $3.76
  • Revenue: $37.71 billion vs. expected $37.6 billion

Home Depot reported net income of $3.81 billion, or $3.81 per share, down from $4.34 billion, or $4.24 per share, a year earlier. Sales fell from $38.87 billion in the same period last year.

According to Factset, comparable sales fell 3.1% year over year, a decline that was not as steep as the 3.6% expected by analysts. However, it was the fourth straight quarter of declining comparable sales, an industry measure that strips out the impact of store openings, closings and renovations.

Home Depot has faced two challenges over the past year: High mortgage rates have put pressure on potential homebuyers, and high inflation is making it harder to sell expensive items and major renovations.

In recent quarters, customers have backed away from more expensive projects and expensive items – a trend that continued in the most recent quarter, McPhail said.

The housing market has had a mixed impact on Home Depot’s sales as mortgage rates rise, home values ​​remain high and supply remains low, McPhail said. On the one hand, he said, customers are no longer moving as often and taking on projects that typically come with a new home. On the other hand, some have decided to spruce up the house where they have a lower fixed-rate mortgage.

“We don’t know exactly how to quantify this balance,” he said. “And that’s obviously something we’ll keep an eye on next year.”

Customer transactions fell to 399.8 million from 409.8 million in the same period last year. When shopping online and in person, customers’ average ticket price was $89.36, about the same level as last year.

Even before that momentum took hold, Home Depot expected sales to decline after so many homeowners checked off kitchen remodels, painting jobs and more during the Covid pandemic. McPhail has also seen a shift in budget priorities toward experiences like vacations and concerts.

Still, Home Depot customers are in good financial shape, he said.

“The consumer – and particularly the homeowner who is our customer – is healthy,” he said. “You are employed. They have recorded increases in income and assets in recent years. They have excess savings and continue to engage in home improvement.”

Last year, the company missed quarterly revenue expectations twice, leading to a decline in stock performance.

Shares of Home Depot have fallen nearly 9% so far this year, lagging the S&P 500’s nearly 15% gains over the same period. The company’s stock closed at $288.07 on Monday, bringing Home Depot’s market value to about $288 billion.

—CNBC’s Robert Hum contributed to this report.

Source : www.cnbc.com

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