Homeowners took on smaller, spring maintenance projects during the recent quarter despite continuing economic uncertainty, driving Home Depot's sales higher and giving the company confidence to back its full-year outlook.
Chief Financial Officer Richard McPhail said in an interview that consumers took on a variety of spring-focused, do-it-yourself projects, such as re-mulching their landscaping and upgrading their patios, while professional contractors completed decking, electrical and plumbing jobs.
Still, steep interest rates and continued inflation continue to keep homeowners from taking out debt to tackle larger, months-long renovations, he added.
"They are engaged in smaller projects, but we haven't yet seen that combination of factors that unlocks larger projects," McPhail said.
Home Depot is focusing on what it can control while operating in a dynamic environment, he said. The company has made changes to its stores, evolving its staffing model and launching new technology, including artificial intelligence, to better support its business.
The company also is investing in its fulfillment network, working to provide consumers with the quickest possible delivery service and contractors with greater control over delivery timing. The company has expanded its express delivery service nationwide, meaning nearly everything in its store can be delivered in three hours or less, McPhail said.
Comparable sales, which account for store openings and closings, grew 1.7% in the second quarter, topping the 0.9% increase that analysts polled by FactSet expected. Net sales climbed 5.7%, to $47.86 billion, also ahead of Wall Street models.
Profit climbed to $4.77 billion, or $4.79 a share, for the three months ended Aug. 2, from $4.55 billion, or $4.58 a share, a year earlier. On an adjusted basis, earnings of $4.92 a share topped analyst views for $4.73 a share.
The increases exceeded the company's expectations and came as a welcome surprise for Home Depot, which - along with other home-improvement chains - has struggled against an essentially frozen housing market for the past several years, McPhail said.
Home-improvement retailers rely on housing turnover to drive sales, since homeowners often undertake remodeling projects before selling or after buying a home.
There are three components of housing affordability: home prices and appreciation, income growth, and mortgage rates. "We haven't seen mortgage rates move in our favor, but we do know that incomes are growing faster than home-price appreciation," McPhail said. "So, there is a little bit of progress there."
The progress gave Home Depot the confidence to reaffirm its outlook for the year, which calls for net sales to climb 2.5% to 4.5% and for comparable sales to be flat to up 2%. The company said tariff refunds would help to offset higher fuel and production costs.
The quarterly results come after Home Depot last week said Ted Decker, its chief executive, would take a temporary medical leave of absence. McPhail, alongside Ann-Marie Campbell, the senior executive vice president of U.S. stores and operations, will oversee operations during his absence.
"We wish Ted a quick recovery, and we look forward to welcoming him back within the next few months," McPhail said. "Ann-Marie and I have worked together for more than 20 years, and we're here to cover for Ted until he returns."