While the market is focused on Walmart’s (NYSE:WMT) impressive quarterly results today, very little attention is being paid to America’s best-known home-improvement superstore, Home Depot (NYSE:HD). That’s unfortunate, as an argument could be “constructed” (pun fully intended) that Home Depot is emblematic of the nation’s economic health — or lack, thereof.
In other words, when Home Depot is thriving, consumers are consuming and America’s fiscal juices are flowing. As it turns out, Home Depot’s results and forward guidance suggest the U.S. housing market may be in a slump for a while.
However, this doesn’t necessarily mean that the outlook is entirely hopeless or that Home Depot doesn’t deserve your investable capital now.
A “year of moderation”
Remember how Meta Platforms CEO Mark Zuckerberg called 2023 a “year of efficiency” for the company? Home Depot CEO Ted Decker has a different moniker for last year, although today’s investors might not be particularly pleased with the CEO’s choice of words.
“After three years of exceptional growth for our business, 2023 was a year of moderation,” Decker remarked in a statement.
If Zuckerberg’s “year of efficiency” referred to strategic cost-cutting, then Decker’s “year of moderation” evidently conveyed the consternation of prospective home buyers in 2023. Between sticky inflation and sky-high mortgage rates, last year didn’t offer America’s most favorable housing-market conditions.
The upshot was a fourth quarter rife with “moderation.” Specifically, Home Depot’s total sales declined 2.9% year over year to $34.8 billion. Furthermore, the company’s global comparable-store sales decreased 3.5% while its U.S. comparable-store sales fell 4%.
Perhaps none of this ought to surprise anyone, given the challenging environment that Home Depot had to navigate in Q4.
“One of the main issues [for Home Depot] continues to be a very sluggish housing market,” GlobalData Retail analyst Neil Saunders explained in a note to clients. “This continues to suck a lot of demand out of the market as home movers are, traditionally, big spenders on improvement,” he added.
Brian Nagel, managing director and senior analyst at Oppenheimer, seemed unimpressed with Home Depot’s quarterly results. In an interview with Yahoo! Finance Live, Nagel called Home Depot’s earnings report “very blasé” and discerned that the company is still dealing with “a post-pandemic-type dynamic.”
It’s possible that this “dynamic” contributed to Home Depot’s lackluster bottom-line results. Nagel tempered his critique by acknowledging that the company is “extraordinarily well-managed” and still “solidly profitable.”
However, today’s investors didn’t respond with much enthusiasm as Home Depot reported Q4 2023 net earnings of $2.82 per diluted share, down 14.5% year over year.
Looking for hope in 2024
Mirroring his boss’ “moderation” statement, Home Depot Chief Financial Officer Richard McPhail warned in an earnings call, “We still expect pressures to our business in 2024… We’re planning for a year of continued moderation.”
Thus, Home Depot called for its comparable-store sales to decline “approximately” 1% in 2024.
That wouldn’t be the worst possible outcome after Q4 same-store sales fell 3.5%, but the market just wasn’t in the mood to tolerate any “blasé” guidance today. Moreover, Saunders offered some hope of a housing-market recovery this year.
“Fortunately, there is some evidence that the housing market will pick up slightly in 2024,” Saunders observed in a note clients.
In a similarly optimistic vein, analysts at Wedbush Securities noted a “rebounding industry environment with healthy Pro and general employment, solid wage growth, and homeowner spending power from continued home-price appreciation.” If it persists in 2024, it will be positive for Home Depot and for America’s economic climate overall.
With that, the Wedbush Securities analysts lifted their HD stock rating from Neutral to Outperform. It’s a bold upgrade during a time of uncertainty in America’s housing market.
There’s one other sign that Home Depot is prepared to weather any perceived economic storm. The company’s board just approved a 7.7% increase in the quarterly dividend to $2.25 per share. This translates to an annual dividend of $9 per share, or a yield of 2.48% at a share price of $363.
Truly troubled businesses typically don’t hike their dividends like that, so that’s another checkmark in the positive column for Home Depot. Thus, while everybody and his uncle pore over Walmart’s earnings report, feel free to hunker down with Home Depot stock, collect some decent dividend distributions, and hope for an American housing recovery.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
