Shares of Home Depot, Inc. saw a decline of over 5% during pre-market trading on the NYSE after the home improvement retailer reported weaker-than-expected earnings in its second fiscal quarter, driven by lower comparable sales despite a modest increase in total sales. Nevertheless, the company's adjusted earnings exceeded Wall Street's expectations.
Additionally, Home Depot revised its earnings outlook for fiscal 2024 downward, now anticipating a decline instead of the previously expected growth. The company also lowered its forecast for comparable sales but raised its total sales growth projection to account for the recent acquisition of SRS Distribution Inc.
Ted Decker, chair, president, and CEO, remarked, "The long-term fundamentals supporting home improvement demand remain robust. However, during the quarter, higher interest rates and broader macroeconomic uncertainty dampened consumer demand, resulting in reduced expenditure on home improvement projects. Nonetheless, our team successfully navigated this unique environment while maintaining high execution standards."
The revised fiscal 2024 guidance from Home Depot includes 53 weeks of operating results and incorporates the recently acquired SRS Distribution Inc. The prior outlook did not account for the impact of this acquisition.
For the fiscal year, Home Depot now forecasts earnings per share, on a 53-week basis, to decrease by 2% to 4%, and adjusted earnings per share to drop by 1% to 3%. The company had previously projected a growth of approximately 1% for the 53-week earnings per share.
The additional week is expected to contribute approximately $0.30 each to earnings per share and adjusted earnings per share compared to fiscal 2023. Total sales are now expected to rise by 2.5% to 3.5%, including the 53rd week, an increase from the earlier projection of about 1%. The 53rd week is anticipated to add around $2.3 billion to total sales, while the SRS acquisition is expected to contribute approximately $6.4 billion in incremental sales.
Comparable sales are now projected to decline by 3% to 4% for the 52-week period compared to fiscal 2023, a steeper decline than the initially expected 1%. This implies additional pressure on consumer demand.
Home Depot also expects a gross margin of around 33.5%, with an operating margin rate between 13.5% and 13.6%, and an adjusted operating margin rate between 13.8% and 13.9%. Previously, the gross margin was projected at around 33.9% and the operating margin at approximately 14.1%.
In the second quarter, Home Depot reported net earnings of $4.561 billion or $4.60 per share, a slight decrease from last year's $4.659 billion or $4.65 per share. Adjusted earnings per share were $4.67, compared to $4.68 per share a year ago. Analysts had expected earnings of $4.49 per share, according to Thomson Reuters data, which typically exclude special items.
The adjusted operating income stood at $6.6 billion, and the adjusted operating margin was 15.3%, compared to last year's $6.6 billion and 15.5%, respectively. Quarterly sales edged up by 0.6% to $43.175 billion from $42.916 billion last year, slightly above the Street's expectations of $43.06 billion. Total sales included $1.3 billion from the SRS acquisition, representing about six weeks of sales within the quarter.
Comparable sales decreased by 3.3% in the second quarter, while U.S. comparable sales dropped by 3.6%. As of the latest pre-market trading on the NYSE, Home Depot shares were down by approximately 5.1%, trading at $328.26.
