Home Depot (HD 1.24%) has struggled the past two years, but you might not know it from its stock price. While the company has consistently seen negative same-store sales since the end of 2022, its stock nonetheless has generated a 19% total return over that period.
It's an interesting dichotomy that begs the question: When will the company begin to see a turnaround, and will its struggles take a bigger toll on the share price?
NYSE: HD
Key Data Points
Declining same-store sales
For seven straight quarters, Home Depot reported declining same-store sales. It's the type of streak retailers would prefer not to see.
| Q3 '22 | Q4 '22 | Q1 '23 | Q2 '23 | Q3 '23 | Q4 '23 | Q1 '24 | Q2 '24 | |
|---|---|---|---|---|---|---|---|---|
| Same-store sales | 4.3% | (0.3%) | (4.5%) | (2.0%) | (3.1%) | (3.5%) | (2.8%) | (3.3%) |
| U.S. same-store sales | 4.5% | (0.3%) | (4.6%) | (0.2%) | (3.5%) | (4.0%) | (3.2%) | (3.6%) |
Data source: Home Depot quarterly earnings reports.
In the fiscal 2024 second quarter, transactions dropped 2.2%, while ticket size dipped 1.3%. Not only are fewer people visiting Home Depot stores, but when they do visit, they're spending less money.
Big ticket items, which the company defines as costing $1,000 or more, continue to be a weak spot, down 5.8%. The company said that once again, it was seeing less spending on larger projects that typically require financing. Home Depot only called out one department as having positive comps, which was plumbing.
The home improvement retailer's overall sales edged up by 0.6% to $43.2 billion. Adjusted earnings per share (EPS), meanwhile, fell a penny to $4.67.
Looking ahead, the company lowered its full-year same-store sales guidance. It now expects same-store sales to fall between 3% to 4% compared to a prior forecast calling for a 1% decline. Management said the low end of its guidance assumes additional pressure on consumer demand.
It projected full-year sales will grow between 2.5% and 3.5%, which includes the benefit of an extra week this year and Home Depot's recent acquisition of SRS Distribution, which distributes roofing supplies and building materials.
Image source: Getty Images.
When will same-store sales rebound?
Home Depot's same-store sales struggles stem from a few issues. First, during the pandemic, it saw a lot of pull-forward in demand for large projects when people were largely isolated in their homes and taking up remodeling projects. Then, interest rates surged, making financing for projects much more expensive. Higher rates also led to a slowdown in the housing market and people moving. Remodeling and home repair projects, meanwhile, are often initiated alongside home buying and selling, so a lack of existing house sales also tends to be a headwind.
When trying to predict when remodeling activity could pick up, consider looking at the Leading Indicator of Remodeling Activity (LIRA), which is published by the Joint Center for Housing Studies at Harvard University. The year-over-year declines in spending are expected to bottom out in the fourth quarter with a 6.3% decrease while improving to a decline of only 0.5% in Q2 2025.
Image source: The Joint Center for Housing Studies at Harvard University.
Given those projections, along with the more cautious tone from Home Depot, I would not expect same-store sales for the company to turn positive until sometime around the middle of 2025 or later.
Buy, sell, or hold?
Though Home Depot stock has trailed the broad market in the past two years, it hasn't been punished by the market as much as you might think. Even now, shares boast a price-to-earnings (P/E) ratio of about 23, close to its historical levels.
Data by YCharts.
At this point, if I owned Home Depot stock, I would continue to hold it. The company has the potential to rebound next year as interest rates ease. But I would not be a new money buyer at current levels. The turnaround seems partly baked into the stock's price already, and there is still the possibility industry conditions worsen if the U.S. falls into a recession.
