Home Depot leans on demand for small projects to top estimates

Home Depot beat quarterly profit estimates and posted a lower-than-expected drop in comparable sales on Tuesday, as the top U.S. home-improvement retailer tapped into a switch by customers to small-scale projects and essential repair work.

U.S. consumers have put big renovations and discretionary home-improvement projects on the back burner as they battle still-high food prices, lingering caution around the economy and higher interest rates.

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"Similar to the second quarter, we saw continued customer engagement with smaller projects, and experienced pressure in certain big-ticket, discretionary categories," CEO Ted Decker said in a statement.

Customer transactions fell 2.4% in the third quarter, declining for the 10th straight quarter, while average spending at stores also dipped slightly.

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Meanwhile, comparable sales declined 3.1% for the three months ended Oct. 29, while analysts on average had expected a 3.31% drop. Profit of $3.81 per share topped estimates of $3.76.

The company's shares, down 8.8% this year to Monday's close, were up about 1% premarket.

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"With continued pressure in certain big-ticket discretionary categories and a trend to smaller projects, HD took the conservative approach – which we agree with," Evercore analyst Greg Melich said.

Some investors, however, might be disappointed by the narrowing of full-year forecasts despite the slight results beat, he added.

Home Depot tightened its annual sales forecast range to a decline between 3% and 4%, compared with its prior forecast for a 2% to 5% decrease.

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It now expects annual per-share profit to fall 9% to 11%, compared with a 7% to 13% slump estimated previously.

"I don't really think it's the type of (results) beat that would change any sort of investment viewpoint ... for the home improvement retailers," M Science analyst John Tomlinson said.

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"Unless housing turnover improves, we have muted expectations going into 2024. I don't know if you're going to see the same level of decline that we've seen this year ... but the general consumer and sales will remain soft and under pressure," he added