On Tuesday, home improvement retail giant Home Depot, Inc. (NYSE:HD) lowered its full-year profit forecast, attributing the change primarily to weaker demand, cautious consumers and a stalled housing market.
- HD stock is moving lower. See the real-time price action here.
On the company's earnings call, Home Depot executives cited a lack of expected growth in the second half of the year, despite previously hoping for improved conditions.
"While underlying demand in the business remained relatively stable, sequentially an expected increase in demand in the third quarter did not materialize," CEO Ted Decker stated.
Read Next: Ready For A Rebound? Here Are 10 Oversold Stocks To Watch
The failure to accelerate, coupled with other factors like a surprisingly quiet storm season, led to disappointing results and the lowered outlook.
The Housing Market Headwind
Executives pointed directly to external economic conditions impacting their core business.
"We believe that consumer uncertainty and continued pressure in housing are disproportionately impacting home improvement demand," Decker said, painting a clear picture of the macro forces at play.
This pressure is felt particularly in the financing of big jobs.
"We continue to see softer engagement in larger discretionary projects where customers typically use financing to fund renovation project," noted Billy Bastick, Executive Vice President of Merchandising.
The housing market itself provides little comfort. Decker detailed the chilling dynamics: "What we’re seeing now is even less turnover. The housing activity is truly at 40 year lows as a percentage of housing stock. I think we’re at 2.9% turnover."
Less turnover means fewer new homeowners embarking on immediate, large-scale projects.
A Reluctant Customer
Decker said that even if consumers have money, they are hesitant to spend it on major discretionary projects due to continued inflation.
"The economic uncertainty continues largely now due to living costs. Affordability is a word that’s being used a lot. Layoffs, increased job concerns, etc. So that’s why we don’t see [an] uptick in that underlying storm adjusted demand in the business," the CEO said.
Despite the challenges, Home Depot remains competitive in its core mission, according to Decker.
"I think the good news is the team, as I said, is executing at a very high level and we believe we’re taking shareholders," he said.
However, Home Depot does not see a near-term change in the macro environment and does not see a boost to the underlying demand in the months ahead.
HD Price Action: According to Benzinga Pro, Home Depot shares were down 4.46% at $342.08 as investors reacted to the earnings and outlook.
Read Next:
Photo: Shutterstock
