While hopes for lower interest rates continue to circulate, Home Depot (HD) executives aren’t betting on a dramatic turnaround in the housing market, which has been a drag on the company’s performance in recent years.
The home improvement giant anticipates that elevated mortgage rates will continue to suppress housing turnover, leading to a more subdued outlook for the year ahead.
Low expectations: “no meaningful increase” in turnover
“At this point, while we’ve seen a little life in turnover in Q4, we’re not expecting a meaningful increase of that 40-year low,” CEO Edward Decker said on the company’s fourth-quarter earnings call on Tuesday.
Over the past few years, Home Depot executives have consistently attributed the company’s challenges to a difficult housing market.
High homeownership costs have contributed to slumping existing home sales and a reduction in home improvement spending.
As a result, the retailer is projecting modest growth of just 1% in same-store sales for the fiscal year ending in January 2026.
This forecast falls short of the 1.65% consensus estimate among Wall Street analysts, signaling a more cautious outlook.
“While there are signs that the home improvement market is on the way towards normalization, uncertainty still remains,” CFO Richard McPhail said on a call with analysts, echoing Decker’s cautious sentiment.
Home Depot shares gain despite weak outlook
Despite the tepid sales outlook and concerns about the housing market, Home Depot shares gained about 4% on Tuesday after the world’s largest home improvement retailer reported its fourth-quarter earnings.
This positive market reaction suggests that investors may be looking beyond the immediate challenges and focusing on other factors driving the company’s performance.
Decker doesn’t foresee a significant housing recovery because of the unlikeliness of rate cuts from the Federal Reserve.
“We’ve likely reached the bottom of housing turnover at about 3% of units. But we’re not expecting a big rebound, nor significant increases in new housing starts,” the executive added, managing expectations for the near-term performance of the company.
Still, the latest quarter, which ended in early February, did offer some signs of improvement.
Home Depot’s comparable sales grew 0.8%, surpassing analysts’ expectations for a drop of more than 1.71% following eight consecutive quarters of negative growth.
Executives highlighted strong sales in appliances and power tools as positive drivers, while discretionary projects like kitchen and bath remodels continue to face headwinds.
In light of these mixed results, analysts are exploring potential catalysts that could boost Home Depot’s performance.
Wedbush analyst Seth Basham, for example, noted that incremental sales could come from “hurricanes and wildfires related demand.”
He also cited a solid holiday season, stronger appliance sales, higher lumber prices, and “possibly better demand for bigger-ticket projects” as reasons for optimism.
The tariff factor: a potential sales boost?
Another potential tailwind for the retailer’s key sales metric could be tariffs.
“We think it’ll tend to be slightly positive because we do think they’ll be able to pass some of it through to consumers. That’s what we saw last time there were tariffs in 2018 and 2019,” D.A. Davidson managing director and senior research analyst Michael Baker told Yahoo Finance after the company reported earnings.
“So maybe it’ll be a bit of a comp [sales] benefit … the offset could be [that] you lose units, but that’s not what we saw last time.”
Ultimately, Home Depot’s performance in the coming year will likely depend on a complex interplay of factors, including the direction of interest rates, the strength of the overall economy, and the company’s ability to capitalize on emerging opportunities and manage ongoing challenges.
While the housing market may remain sluggish, other drivers, such as disaster relief and potential tariff benefits, could provide a boost to the retailer’s bottom line.
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