Investors are bracing themselves for what seems to be inevitable:
could post its first annual sales drop since 2009.
The company all but confirmed as much in its fiscal-third-quarter earnings report in November. Since then, Wall Street has lowered its sales estimates for the home improvement retailer, which reports earnings Tuesday morning.
Analysts expect
Home Depot
’s
revenue will fall by 3% to $34.6 billion in its fiscal fourth quarter, according to FactSet estimates as of Friday afternoon. Yearly revenue is also expected to decline by that amount, according to estimates.
For the quarter ended in January, same-store sale are projected to fall by 3.6%. Adjusted earnings are projected to clock in at $2.77 a share for the period.
Home improvement retailers have had a tough go of it lately. With mortgage rates still rising, people haven’t been too keen on buying new homes—or embarking on the expensive renovations that often accompany a new purchase. That has translated to fewer sales for companies such as Home Depot and its peer
Lowe’s
.
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The market may be willing to overlook a lackluster report if the company’s management team indicates they see a better environment for fiscal 2024. That’s what happened following the company’s third-quarter report—while sales fell, an earnings beat and narrower guidance helped the shares move higher.
And certainly, there are a few budding signs that things are looking up for home improvement. For one, the sector’s busy season—spring and summer—is fast approaching, which could help boost sales. Plus, the prospect of lower interest rates later this year could support a more optimistic tone from the company’s management team, according to D.A. Davidson analyst Michael Baker.
“HD is well positioned to benefit from an inflecting cycle,” agreed TD Cowen analyst Max Rakhlenko, writing in a research note last week.
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Still, most analysts agree the sector isn’t out of the woods yet.
Sales at building material stores fell 4.1% in January from December, and are 8.3% lower year-over-year, according to the latest retail sales report.
Foot traffic has also decelerated. Visits to Home Depot in November and December were 1.6% and 5.5% lower year over year, respectively. January also got off to a rocky start, with visits down 7.1%. And to top it all off, new-home construction plunged in January.
Shares of Home Depot are up 4.6% this year, roughly in line with the
S&P 500’s
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5% gain.
Write to Sabrina Escobar at sabrina.escobar@barrons.com