The Home Depot Inc. reported a 0.6% increase in net sales in its second-quarter results. The company attributed its growth to its recent acquisition of SRS Distribution. However, the home improvement giant also struggled with economic issues that dampened consumer spending.

The company’s revenue rose to $43.2 billion in the quarter ended July 28. The acquisition of building materials supplier SRS contributed $1.3 billion to revenue, but overall store sales declined as customers tightened their belts in the face of rising interest rates and costs.

The Home Depot Inc., which sells to both professional contractors and consumers through its online and brick-and-mortar stores, is ranked No. 4 among the largest online retailers in North America in Digital Commerce 360’s Top 1000 database. It is also the top-ranked retailer in the Hardware & Home Improvement category of the Top 1000. Digital Commerce 360 ​​forecasts Home Depot’s web sales to reach $23.6 billion in 2024.

Home Depot faces challenges in Q2 results

In the earnings call following the release, Home Depot CEO Ted Decker attributed the slowdown to a complex mix of factors, including the geopolitical environment, unemployment, ongoing inflation and general economic uncertainty, suggesting consumers are adopting a wait-and-see attitude in the face of challenging conditions.

“We’re mostly working our way through that phase,” Decker said. “And then higher interest rates started to impact the real estate market and particularly real estate sales, which fell by about 40%.”

In stores, these issues translated into a 3.3 percent year-over-year decline in comparable sales, but that decline was partially offset by growth in Home Depot’s online sales.

Home Depot’s second quarter online sales

“In terms of the company’s overall online sales, sales through our digital platforms increased approximately 4% compared to the second quarter of last year. And for those customers who transacted with us online in the second quarter, nearly half of our online orders were fulfilled through our stores,” said Billy Bastek, executive vice president of merchandising at Home Depot, during the quarterly earnings call.

Home Depot Web Sales by Year

Bastek also informed investors about Home Depot’s partnership with Instacart, which he said is going well.

“In addition, in the second quarter, we expanded our partnership with Instacart to enhance the connected shopping experience across the country,” Bastek said. “While we are still in the early stages of our expanded partnership, we are encouraged by the results we are seeing.”

Despite the recent increase in sales, the company is taking a more cautious approach for the rest of the year.

CEO cites macroeconomic headwinds

Still, Home Depot’s in-store sales continued to decline in the second quarter, marking the seventh consecutive quarter of declines since the retailer’s pandemic-led growth. While comparable sales fell 3.3% year-over-year, they were hit particularly hard in the U.S., where Home Depot stores saw a 3.6% decline.

The retailer’s net income fell slightly to $4.6 billion, compared to $4.7 billion a year earlier. Customer transactions declined for the 13th consecutive quarter, down 1.8 percent. Transactions on high-priced items over $1,000 at Home Depot fell 5.8 percent compared to the same quarter a year ago.

The retailer’s customer base is roughly evenly split between do-it-yourselfers and professional contractors, known as pros. Despite stronger performance from contractors, both groups saw sales decline this quarter. Do-it-yourself customers held off on major projects, and some preferred to wait for more favorable economic conditions, including lower interest rates.

“Everyone is expecting interest rates to fall and is therefore postponing these projects,” said Decker. “But recently there has been renewed concern about overall economic development.”

Home Depot lowers forecast, but expects growth in digital and pro market

On a positive note, Home Depot’s digital sales continued to grow, rising 4% year over year, accelerating from the previous quarter’s 3.3% increase. The retailer’s focus on in-store fulfillment is paying off: Nearly half of online orders are now fulfilled in stores.

With Home Depot’s acquisition of SRS Distribution in June – its largest acquisition ever – the company is also positioning itself for growth in the professional construction market and in digital B2B commerce.

SRS, which operates an e-commerce site at RoofHub.pro, contributed $1.3 billion in revenue during its six-week affiliation with Home Depot in the second quarter.

During the quarter, Home Depot also expanded its same-day delivery with Instacart nationwide, expanding its e-commerce offerings. Customers can now order nearly any Home Depot product through Instacart, with delivery in as little as one hour from approximately 2,000 locations.

Looking ahead, Home Depot has lowered its sales forecast for the year. The retailer now expects full-year comparable sales to decline 3 to 4 percent year over year, even worse than the previous estimate of 1 percent. The company still expects sales growth of 2.5 to 3.5 percent, factoring in the acquisition of SRS Distribution and a 53rd week, which should boost sales by about $6.4 billion and $2.3 billion, respectively.

Key figures from Home Depot’s earnings highlights

For the second fiscal quarter ended July 28, 2024, Home Depot reported:

• Total revenue increased 0.6% year-on-year to $43.2 billion.
• Home Depot’s online sales increased 4%.
• Comparable sales fell by 3.3%, while in the US the decline was 3.6%
• Net profit was $4.6 billion, down from $4.7 billion a year earlier.

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