Shares of Dwelling Depot (NYSE: HD) stayed inexperienced on Monday. The inventory has gained over 7% prior to now three months. The house enchancment retailer confronted continued challenges within the second quarter of 2024 and stays cautious for the rest of the yr. However, there are a number of brilliant spots in opposition to this bleak backdrop.
Difficult Q2
Dwelling Depot generated gross sales of $43.2 billion within the second quarter of 2024, which have been up simply 0.6% from the identical interval a yr in the past. Comparable gross sales decreased 3.3% in Q2, reflecting continued declines over the previous 5 quarters. GAAP EPS decreased 1% year-over-year to $4.60 whereas adjusted EPS dropped to $4.67 from $4.68 within the year-ago interval.
In Q2, buyer demand was impacted by larger rates of interest and macroeconomic uncertainty which led to weaker spend on residence enchancment tasks. Spring tasks witnessed a normal softness and have been additionally impacted by excessive climate modifications through the quarter.
The corporate noticed a 2.2% lower in comp transactions and a 1.3% drop in common ticket through the quarter. Huge-ticket comp transactions, or these over $1,000, have been down 5.8% YoY, with bigger discretionary tasks, like kitchen and tub remodels, experiencing softness.
Cautious outlook
Because of the weak efficiency within the first half of the yr and the continued uncertainty round client demand, Dwelling Depot stays cautious in its outlook for fiscal yr 2024. The retailer now expects comparable gross sales for the 52-week interval to be down 3-4% versus its prior expectation of a decline of round 1%.
GAAP EPS for the 53-week interval is now anticipated to say no 2-4% versus the earlier forecast for progress of approx. 1%. Adjusted EPS for the 53-week interval is predicted to say no 1-3%. The 53rd week is predicted to contribute EPS of approx. $0.30 on each a reported and adjusted foundation.
Shiny spots
Regardless of these near-term challenges, Dwelling Depot is targeted on rising its share within the extremely fragmented, approx. $1 trillion residence enchancment market over the long run.
“Keep in mind, we function in one of many largest asset lessons, which is estimated at roughly $45 trillion, representing the put in base of properties in the US. Right this moment, we’ve roughly 17% market share, with great progress potential. That’s the reason we’ve been investing and executing on our technique to create the perfect interconnected expertise, develop our Professional pockets share by way of a differentiated set of capabilities, and construct new shops.” – Ted Decker, CEO
One other space of alternative is the SRS Distribution acquisition. The SRS acquisition contributed $1.3 billion in gross sales to HD’s prime line in Q2. On its convention name, Dwelling Depot stated for the six-month interval matching its first half, SRS generated high-single-digit prime line progress, whereas rising working earnings largely in step with gross sales, in comparison with the earlier yr.
This acquisition supplies HD with the prospect to drive progress by way of a number of gross sales and cross synergy alternatives. It permits Dwelling Depot to broaden its product portfolio with a variety of choices in roofing, pool, and panorama from SRS. HD plans to make purchases extra handy for SRS prospects at its shops by providing a type of credit score tied to their account. The mixed belongings and capabilities from this acquisition are anticipated to show useful to HD over the long run.
Dwelling Depot up to date its full-year 2024 steerage to mirror the SRS acquisition. It now expects complete gross sales to extend 2.5-3.5%, together with the 53rd week, in comparison with the earlier expectation for a progress of approx. 1%. The 53rd week is projected so as to add approx. $2.3 billion to complete gross sales whereas the SRS acquisition is predicted to contribute approx. $6.4 billion in incremental gross sales.