A relatively weak housing market and ongoing economic uncertainty continued to challenge the home improvement sector’s biggest players in the third quarter.
The Home Depot on Tuesday said its Q3 results missed its expectations due to the lack of storm activity causing pressure in some categories. The retailer reported third quarter net sales increased 2.8% year over year to $41.4 billion, which includes $900 million related to the acquisition of GMS Inc. Without that inclusion, total sales were essentially flat from the year-ago period, according to GlobalData Managing Director Neil Saunders.
Home Depot posted overall comparable sales growth of 0.2%, and 0.1% within the U.S. Gross margin was 33.4%, flat compared to the same period a year ago.
The retailer’s profits narrowed during the quarter, with operating income falling 1.2% year over year to $5.4 billion and net income declining 1.3% to $3.6 billion.
CEO Ted Decker said on an earnings call Tuesday that “while underlying demand in the business remained relatively stable sequentially, an expected increase in demand in the third quarter did not materialize.”
“We believe that consumer uncertainty and continued pressure in housing are disproportionately impacting home improvement demand,” he added.
Meanwhile, at rival Lowe’s, third quarter total sales increased about 3% year over year to $20.8 billion, while comp sales grew 0.4% driven by strength in pro sales, double-digit growth in home services and an 11.4% increase in online sales.
During the quarter, the retailer saw positive comps in 10 out of 14 product categories, including appliances, electrical and flooring.
Like Home Depot, Lowe’s took a hit to profits in the quarter, with operating income falling over 2% to $2.5 billion and net income declining 4.7% to $1.6 billion.
The retailers’ third quarter results come amid a relatively weak housing market and cautious consumer.
While big-ticket purchases in Q3 grew 2.3% at Home Depot, “we continue to see softer engagement in larger discretionary projects, where customers typically use financing to fund renovation projects,” Billy Bastek, Home Depot’s executive vice president of merchandising, said on a Tuesday call.
In light of continued uncertainty and housing pressure, both retailers updated their full-year outlooks, which included lowering their profit forecasts.
For the full year, Home Depot expects sales to grow 3% year over year, with comps to be slightly positive. Lowe’s expects full-year sales to be $86 billion, up from $84.5 billion to $85.5 billion, and comps to be flat, down from prior expectations of up 1%. Adjusted operating margin is expected to be 12.1%, down from 12.2% to 12.3%.
The professional customer cohort continues to be a focus area, with Home Depot and Lowe’s working to capture share through various acquisitions and service offerings.
In September, Home Depot closed on its acquisition of GMS, which focuses on specialty building products, including drywall, ceilings and steel framing. And one month earlier, Lowe’s announced plans to acquire Foundation Building Materials, a North American distributor of interior building products.