Another strong evidence of weak US consumption: Home Depot lowers this year's same-store sales guidance, expecting a wider decline | Financial Report Watch

The barometer of US consumer spending and the real estate market - the largest home decor retailer Home Depot once again sounded the alarm for weak US consumption. Home Depot's same-store sales in the second quarter fell more than expected, and the latest forecast for full-year same-store sales guidance is significantly lower than previously expected.

On Tuesday, August 13th, after the US stock market closed, Home Depot announced the financial data for the second quarter of its fiscal year 2024, as well as updated guidance for the full fiscal year 2024.

1) Key Financial Data

Revenue: Total sales in the second quarter were $43.18 billion, a year-on-year increase of 0.6%, with $1.3 billion coming from the recently acquired building materials distributor SRS Distribution Inc. Analysts expected $43.06 billion in sales for the quarter.

EPS: Earnings per share (EPS) for the second quarter were $4.60, a year-on-year decrease of 1.1%, with analysts expecting $4.49. Adjusted EPS for the second quarter was $4.67, a year-on-year decrease of 0.2%, with analysts expecting $4.52.

Same-Store Sales: Same-store sales in the second quarter fell by 3.3%, compared to the previously estimated 2.39% decrease.

2) Performance Guidance

Revenue: Including the 53rd week, total sales for fiscal year 2024 are expected to increase by 2.5% to 3.5% compared to the previous fiscal year, including $6.4 billion from SRS.

Same-Store Sales: Compared to fiscal year 2023, same-store sales for fiscal year 2024 are expected to decline by 3% to 4%.

After the financial report was released, Home Depot's stock price initially fell nearly 1.9% on Tuesday morning, then quickly rebounded, fluctuating multiple times before completely reversing the downward trend towards the end of the morning session. Following the release of the US PPI on Tuesday, which reinforced expectations of a Fed rate cut, the stock market rose, ultimately closing up more than 1.2% after successfully rebounding from Monday's decline.

Same-Store Sales Guidance for Fiscal Year 2024 Drops at Least Three Times Previous Estimates

The guidance released by Home Depot indicates that the latest same-store sales decline for fiscal year 2024 is at least three times higher than the previous guidance, with Home Depot previously expecting a 1% decline in full-year same-store sales.

Home Depot's CEO Ted Decker indicated in the press release for the financial report that in the second quarter, "rising interest rates and increased uncertainty in the macroeconomic outlook have exerted broader pressure on consumer demand, leading to a reduction in home improvement project spending." Home Depot's Chief Financial Officer (CFO) Richard McPhail said that high interest rates have caused consumers to postpone buying and borrowing for major home projects such as kitchen renovations since mid-2023. Home Depot has been struggling with consumers who have a mindset of delayed consumption. In the second quarter of this year, a survey of home professionals such as customers and contractors revealed another challenge: consumers are more cautious. McPhail said:

"Professionals tell us that this is the first time their clients are delaying consumption not just because of higher financing costs, but because they feel greater economic uncertainty."

Major U.S. consumer giants in the food and travel industry are sounding the alarm

Some analysts believe that during the peak of the COVID-19 pandemic, millions of people spent more time at home, leading them to engage in home improvement projects, causing a surge in Home Depot's sales. However, many consumers have since shifted from purchasing physical goods to experiences such as travel and attending concerts, while others have overall reduced their spending. This shift in consumer behavior has harmed Home Depot.

Furthermore, under the inflationary pressure of high interest rates, rising prices have reduced household savings, causing Americans to cut back on expenses in areas such as dining out and travel, leading to more cautious consumer behavior. Home Depot's performance has also been affected by this change. Prior to Home Depot's earnings announcement, financial reports from some U.S. consumer and hotel giants indicated that they were facing tough times.

Last Tuesday, short-term rental platform Airbnb warned that despite it being the peak travel season, there are signs of a slowdown in accommodation demand from American travelers, forecasting a deceleration in full-year revenue growth. Hilton hotel chain CEO Chris Nassetta stated after releasing earnings last Wednesday that the U.S. consumer market is "definitely softening."

On the following Wednesday, Disney released its third-quarter earnings report, which exceeded expectations in both revenue and profit, and raised its full-year profit guidance. However, the theme park business remained weak. Disney's CFO Hugh Johnston stated that the theme park business, including Disney World in Florida and Disneyland in California, was impacted by "slowing consumer demand," leading to a 3% decline in operating profit.

In addition, last month, fast-food giant McDonald's decided to extend the duration of its $5 value meal promotion in the U.S. Analysts pointed out that McDonald's sudden introduction of the $5 value meal about a month ago was due to consumers becoming increasingly price-sensitive amidst high interest rates and inflation, starting to seek budget-friendly meal deals. The decision by 93% of McDonald's stores to extend the promotion was because company executives understood that the trend of slowing U.S. consumer spending is expected to continue.

This month, KFC once again launched the $5 "poor man's meal" in the U.S. after April to combat sluggish consumer spending. Wall Street CN reported that middle and lower-end consumers seem to have reached the limit of absorbing price increases for goods and services, with various industries issuing profit warnings, and the market expects more and more fast-food chains to offer discounts