Update: Home Depot reported revenue of $43.18 billion, compared to $43.79 billion expected, while adjusted earnings per share came in at $4.67, compared to estimates of $4.52.
The home improvement retail industry is currently facing a challenging landscape, marked by recent high-profile bankruptcies that could foreshadow a cautious outlook for Home Depot’s upcoming earnings release. On August 13, 2024, Home Depot, Inc. is expected to report its earnings for the fiscal quarter ending July 2024. The consensus EPS forecast is $4.55, a slight decrease from the $4.65 EPS reported for the same quarter last year.
This projected dip in earnings comes as no surprise to those following the industry’s recent struggles. Over the past two years, home improvement retailers have been battered by economic headwinds, including persistent inflation, soaring interest rates, and the tapering off of the home renovation boom that occurred during the COVID-19 pandemic.
During the pandemic’s height, millions of people, confined to their homes, turned to home improvement projects as a way to stay occupied. This led to an unprecedented surge in demand for home renovation supplies and services, temporarily boosting the fortunes of many retailers in the sector. Thousands of decks were built during this period, and lumber prices reached an all time high.
However, as the pandemic subsided and life returned to normal, the demand for home improvement projects waned. Many of the projects that would have been spread out over several years were completed in a short period, leaving a void in the market.
The steep drop in home sales, driven by high interest rates and escalating prices, has resulted in fewer new homeowners undertaking renovation projects to personalize their spaces.
These challenges have been too much for some historic retailers to overcome. For example, in January 2024, Kelly-Moore Paints, a fixture in the industry since 1946, shuttered all 157 of its retail locations, furloughing approximately 700 employees in the process.
More recently, LL Flooring, another major player in the home improvement sector, filed for Chapter 11 bankruptcy protection on August 11, 2024. The Richmond, Virginia-based retailer, formerly known as Lumber Liquidators, was once the top U.S. hardwood flooring retailer, operating about 430 locations across 46 states. Despite its prominence, LL Flooring was unable to withstand the downturn in the housing and remodeling markets that followed the pandemic’s end. The company’s liquidity was stretched to unsustainable levels, leading it to seek a sale of its assets through the bankruptcy process.
LL Flooring’s bankruptcy filing revealed a company in dire financial straits. The retailer listed between $500 million and $1 billion in assets, alongside $100 million to $500 million in liabilities. The company also disclosed efforts to sell its distribution center and the entire business, but liquidity constraints and time pressures thwarted these plans. If a buyer is not found during the bankruptcy proceedings, LL Flooring may be forced to liquidate its assets and close its stores.
The struggles of Kelly-Moore Paints and LL Flooring highlight the broader challenges facing the home improvement retail sector. As Home Depot prepares to release its earnings report, these recent bankruptcies serve as a stark reminder of the industry’s fragility. While Home Depot remains a dominant force in the market, the financial pressures that have brought down other retailers could indicate a more challenging environment ahead.
Investors and analysts alike will be closely watching Home Depot’s earnings report to gauge how the company is navigating these turbulent waters. The modest dip in expected EPS compared to last year suggests that even industry giants are not immune to the economic hardships currently plaguing the sector. Whether Home Depot can continue to weather the storm or if it will face further challenges remains to be seen.
