Shares in Home Depot, America’s biggest DIY company, held up well on Tuesday, considering how it shocked investors with a downgrade.
The shares closed up 1.23% as investors ignored the downgrade, which saw Home Depot warn of a decline in annual profit and a bigger drop in its annual comparable sales.
Normally, such a warning from a sector major like Home Depot would have fed into the prevailing idea of a weakening economy and the need for rate cuts. There seems to be a mistaken belief that a rate cut will solve many ills in retailing, but that’s an illusion. The first rate cut will help relieve tension but not spark a rebound in demand. And besides, if it did provide an immediate boost, that would not be felt until early 2025.
But oddly, it was ignored as investors took a weak producer price report and waited for tonight’s Consumer Price Index data—which will not answer why Home Depot’s warning was ignored.
Home Depot said customers were delaying big projects such as flooring, kitchen cabinets, and bathrooms due to higher borrowing costs and steep inflation, even as higher mortgage rates and home prices hurt new home sales.
“Everyone’s expecting rates are going to fall. So they (the customers) are deferring those (larger) projects,” said CEO Ted Decker on a post-earnings call.
Comparable sales fell 3.3%, steeper than expectations of a 1.98% decline, while customer transactions, an indicator of traffic at Home Depot, slipped for the 13th straight quarter.
Home Depot now expects annual comparable sales to drop between 3% and 4%, compared with its prior view of a nearly 1% decline, while diluted profit per share is expected to drop 2% to 4%.
This idea of consumers holding back will be tested on Wednesday by Walmart’s second-quarter figures.