Home Depot has a brighter second quarter

Things are looking up for Home Depot. After a gloomy first quarter during which sales fell 4.2%, the retailer performed better than expected in Q2. It reported revenue of $42.92 billion for the quarter, higher than the $42.23 billion it projected earlier in the year. Its earnings per share came in at $4.65, better than the expected $4.45.

But the company is maintaining its guidance for the full year and anticipates a 2%–5% drop in sales for the fiscal year. In its earnings call, CEO Ted Decker struck a cautious note, stating that the home improvement market has entered a period of “moderation” after the pandemic-era DIY boom.

Consumers appear to be deferring big-ticket discretionary purchases, such as patio furniture and appliances, Billy Bastek, executive vice president of merchandising, said. Sales of $1,000 or more are down 5.5% YoY. The movement away from large purchases continues a trend that began in Q4 2022.

The company is seeing customers pivot toward smaller projects instead. While its total average sales per customer dropped, the number of transactions rose. “In the second quarter, as we saw weather improve across the country, most notably in our Western division, we saw an increase in spring sales and strength in smaller-ticket projects,” Bastek said.

Yet Home Depot’s core customers are still in good financial shape, Decker said. They’re seeing their home equity grow and benefiting from the tight labor market and wage growth.

Prices are also “settling” after a period of high inflation, Decker said. “We are encouraged that the cycle of inflation is essentially behind us.” Deflation in core commodities, though, especially lumber, weakened average ticket growth. Lumber prices are more than 40% lower than they were this time last year, Bastek said. Lumber accounts for around 8.7% of Home Depot’s sales each year.