Home Depot Raises Outlook on Hurricane-Fueled Demand

Home Depot Inc. lifted its forecast for a key sales metric after adverse weather propped up demand for home-improvement materials in the latest quarter.

Comparable sales declined 1.3% in the period ending Oct. 27, better than what Wall Street analysts were expecting during a time when high interest rates have weighed on the housing market. It was the company’s best quarterly sales performance in almost two years.

Home Depot saw a pickup in demand for seasonal items and supplies for certain outdoor projects, some of which was related to hurricanes that have struck the U.S. in recent months. Warm weather also helped with sales of products like grills, Chief Financial Officer Richard McPhail said in an interview Tuesday.

Home Depot said it anticipates some hurricane-related sales during the current quarter. Generators, lumber and clean-up products typically sell well during weather events.

The Atlanta-based retailer now expects comparable sales to drop 2.5% for the full year, versus the previous guidance of a 3% to 4% decline.

The shares rose 1.9% in Tuesday trading in New York. Home Depot’s stock is up nearly 20% year-to-date, suggesting investors are betting on the retailer’s long-term potential despite the recent sales slump.

Many U.S. consumers continue to postpone buying homes or pursuing larger projects that need financing, waiting for interest rates to drop further.

“Our customers are telling us that they have the demand to do projects like remodeling, but costs of borrowing are still just too high,” McPhail said.

Home Depot executives previously said they anticipate more activity when mortgage rates drop toward 6%, from about 6.8% currently. The Federal Reserve has cut interest rates, but mortgage rates remain among the highest since 2006.

“We continue to see pressure on larger remodeling projects driven by the higher interest rate environment and continued macroeconomic uncertainty,” Chief Executive Officer Ted Decker said on a call with analysts.

Home Depot executives said on the call that the company is working to offer faster delivery options. The retailer is also seeking to improve product availability and store experiences for professional customers who typically work on larger, more complex projects.

Consumers spent less per trip during the latest quarter, though they are trading up new products. The number of transactions over $1,000 fell from a year ago. Sales of garden and paint products grew, while lumber and plumbing products sold below the company average, executives said.

U.S. retailers face an array of challenges: Consumers remain stretched after years of rising prices and have pulled back spending, squeezing some companies’ sales. Additionally, this year’s crucial holiday season is shorter, with five fewer shopping days than last year.

A customer pulls a shopping cart outside a Home Depot store in Palo Alto, California, US. Photographer: David Paul Morris/Bloomberg

President-elect Donald Trump has also said he would impose a 60% tariff on goods imported from China and as much as 20% on items from other countries. That has prompted some companies to change production plans and warn of possible price hikes.

Home Depot’s McPhail said it’s too early to gauge the impact of such measures on the business. The company sources most goods domestically and hasn’t heard from suppliers that they are planning changes, he added.

Home Depot, which operates more than 2,300 stores, is the first of the major U.S. big-box retailers to report quarterly results, with data from Lowe’s Cos., Walmart Inc. and Target Corp. scheduled to follow in the coming weeks.

Top photo: A box truck displays Home Depot signage outside the company’s store in Palo Alto, California.