• by Sarah Mahoney  @mahoney_sarah, November 14, 2023

Americans are scaling back their DIY ambitions, focusing on lower-cost home improvement efforts. That caused sales at the Home Depot to slip 3% to $37.7 billion for the third quarter of the fiscal year, from $38.87 billion in the comparable period of 2022.

Net earnings dropped 12% to $3.8 billion, compared to $4.3 billion in the year-ago period.

Both results were slightly better than expectations.

The retailer also narrowed its full-year forecast and now expects an annual decline of between 3% and 4%.

The results reflect a “period of moderation,” said Ted Decker, chairman, president and chief executive officer, in a conference call webcast for investors. “Similar to the second quarter, we saw continued customer engagement with smaller projects and experienced pressure in certain big-ticket discretionary categories.”

Seth Basham, who follows the retailer for Wedbush, notes in his report that sales of those bigger ticket items dropped 5.2% as homeowners pulled back on larger projects.

He continues his “neutral” rating on the world’s largest home improvement store. “Home improvement fundamentals remain favorable—including an asset class for home improvement that is now worth $15 trillion more than it was pre-pandemic,” he writes. But higher interest rates may “continue to pressure durable goods, in financing or motivation for larger home improvement projects, weighing on home improvement.”

Jaime Katz, an analyst who follows Home Depot for Morningstar, is more upbeat. Because of its brand equity and economies of scale, “the success of ongoing initiatives should allow for modest operating margin expansion above pre-pandemic levels longer term, despite inflationary pressures and near-term economic turbulence,” she writes.

It helps that in addition to Home Depot’s 2,300-plus stores, it continues to invest heavily in its ecommerce operations.

“In our opinion, perpetual improvements in the omnichannel experience should support the firm's competitive position, even as existing-home sales and turnover become more volatile.”