Reuters US Business
By Savyata Mishra and Nicholas P. Brown
(Reuters) -Home Depot kept its annual forecasts intact despite posting muted quarterly results on Tuesday, but said some products may see small price hikes due to tariffs after previously suggesting they would generally not change.
The top U.S. home-improvement chain is betting that customers will continue to spend on smaller-scale maintenance projects, and that demand from professional contractors will stay strong in the second half of the year.
Less clear is when the stalled U.S. housing market - and major home renovations that require financing - will start to pick up.
Home Depot, which sources more than 50% of its products from the U.S., said there would be modest price hikes in some imported goods that currently face higher tariff rates than what it had anticipated in May, when the company said it would "generally maintain" pricing but that some items could disappear from shelves.
"There will be modest price movement in some categories, but it won't be broad-based," Chief Financial Officer Richard McPhail said on a Tuesday conference call.
Shares of Home Depot were up nearly 3% in afternoon trading, lifting the blue-chip Dow Jones Industrial Average. Lowe's, which is set to report quarterly results on Wednesday, rose about 2%.
MUDDY HOUSING OUTLOOK
Home Depot results kick off a keenly watched earnings week for big-box retailers, including Walmart and Target, that will show how consumers are dealing with rising costs and sour economic sentiment.
A key headwind for Home Depot is a U.S. housing market seeing historic lows in turnover, which CEO Ted Decker said could begin to resolve as the federal deficit shrinks. But the outlook remains muddy.
A gauge of U.S. homebuilder sentiment fell unexpectedly in August to its lowest level in over two-and-a-half years. Single-family housing starts, which account for the bulk of homebuilding, rose in July.
Economic uncertainty is also discouraging consumers from splurging on big projects that require financing, but executives voiced optimism that lower interest rates - expected to come later this year - could start to unlock that work.
"We survey our [professional contractor] customers every quarter, and they say their customers tell them they are deferring projects, not canceling projects," said McPhail. "Home improvement demand persists."
Traders are pricing in that the Federal Reserve could lower borrowing costs by a total of 50 basis points this year, with the first one potentially in September.
Atlanta-based Home Depot has invested heavily in its supply chain and order fulfillment capabilities to achieve faster same-day and next-day delivery. It has also rapidly expanded the portfolio that caters to high-value professional customers through acquisitions like SRS Distribution and GMS.
Comparable sales in the U.S. rose 1.4% in the second quarter, marking its third straight quarter of growth, and was driven by strong performance in July owing to warmer weather.
"We believe the consumer continues to be selective in their approach to discretionary categories," Telsey Advisory Group analyst Joseph Feldman said.
To tackle tariff pressures, the company pulled back on promotional activity in some smaller garden categories during the quarter, executives said on the post-earnings call.
Home Depot maintained its fiscal 2025 sales and profit targets. It expects overall sales growth of about 2.8% and adjusted per-share profit to decline 2% from last year.
The company posted net sales of $45.28 billion for the quarter ended August 3, compared with analysts' estimate of $45.36 billion, according to data compiled by LSEG.
Its adjusted profit came in at $4.68 per share, below expectations of $4.71.
(Reporting by Savyata Mishra in Bengaluru; Editing by Sriraj Kalluvila)
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