Home Depot (HD.US), the largest home improvement retailer, a bellwether for U.S. consumer spending and the real estate market, once again sounded the alarm about weak U.S. consumption. Home Depot's same-store sales fell more than expected in the second quarter, and its latest full-year same-store sales guidance is expected to fall far more than previously expected.

Home Depot financial data raises alarm about weak U.S. consumption

After the U.S. stock market closed on Tuesday, August 13th, Eastern Time, Home Depot announced the company’s financial data for the second quarter of fiscal year 2024, as well as updated full-year guidance for fiscal year 2024.

Key financial data

●Operating income: Total sales in the second quarter were US$43.18 billion, a year-on-year increase of 0.6%, of which US$1.3 billion came from the sales of the recently acquired building materials distributor SRS Distribution Inc. for about six weeks in the quarter. Analysts expected US$43.06 billion.

●EPS: Second quarter earnings per share (EPS) was US$4.60, down 1.1% year-on-year, and analysts expected US$4.49; adjusted EPS in the second quarter was US$4.67, down 0.2% year-on-year, and analysts expected US$4.52.

●Same-store sales: Same-store sales fell by 3.3% in the second quarter, compared with the previous estimate of a decline of 2.39%.

After the earnings report was released, Home Depot's stock price fell nearly 1.9% in early trading on Tuesday, but quickly rebounded. The stock price fluctuated several times during early trading, eventually reversing its decline completely by the end of the morning session. After the release of U.S. PPI data, market expectations for the Federal Reserve to cut interest rates increased. Home Depot's stock price rose along with the broader market, and finally closed up more than 1.2%, successfully reversing Monday's decline.

Reasons for weak performance

The guidance released by Home Depot this time shows that the latest same-store sales decline in fiscal year 2024 is at least three times the previous guidance. Home Depot previously expected same-store sales to decline by about 1% for the whole year.Home Depot management suggested that a combination of high interest rates, uncertainty about the economic outlook and fears of a slowdown were hurting demand.

Home Depot CEO Ted Decker said in a press release announcing the financial results that in the second quarter, "rising interest rates and increased macroeconomic uncertainty exerted broader pressure on consumer demand, resulting in reduced spending on home improvement projects."

Richard McPhail, Chief Financial Officer (CFO) of Home Depot, said that high interest rates have prompted consumers to postpone buying and selling houses and borrowing money for major home projects such as kitchen renovations. Since mid-2023, Home Depot has been fighting against consumers who have a delayed consumption mentality. . And in the second quarter of this year, surveys of home professionals such as clients and contractors revealed another challenge: consumers are more cautious. McPhail said:"Professionals tell us that this is the first time their clients are postponing (spending) not just because of higher financing costs, they are postponing because of a sense of greater economic uncertainty."

Weak performance of large companies

The problem of weak consumption in the United States has become increasingly obvious, and the financial report data of many large companies show a trend of reduced consumer spending. This phenomenon not only affects home decoration retailer Home Depot, but also affects many industries such as restaurants and tourism.

Catering industry: McDonald's, KFC

Restaurant giants such as McDonald's and KFC are also feeling the pressure of weak consumption. McDonald's has extended its $5 meal promotion in 93% of its stores, while KFC has launched a new $5 meal in response to an increasingly fierce price war. These measures reflect the real plight of the catering industry amid high costs and weak consumption.The latest financial report of Yum Brands, the parent company of KFC, showed that its same-store sales fell by 8% in the second quarter, which was worse than expected. That's in line with results from other large restaurant companies such as Domino's, McDonald's and Starbucks, and shows the industry is facing widespread consumer weakness.

Tourism: Airbnb, Hilton

The travel industry is not immune. Airbnb, a short-term rental platform, warned in its financial report that even during the peak tourist season, accommodation demand from U.S. travelers has slowed, and it forecast that full-year revenue growth will decelerate. The CEO of the Hilton hotel chain said in its latest financial report that the U.S. consumer market is "definitely softening."

Theme Park: Disney

Disney's third-quarter performance report showed that although its revenue and profits both exceeded expectations and it raised its full-year profit guidance, its theme park business remains weak. Disney's CFO said that its operations at Disney World in Florida and Disneyland in California were affected by "slowing consumer demand," resulting in a 3% drop in operating profit.

U.S. economy faces uncertainty

The U.S. economy faces uncertainty, with the swing between a soft landing and recession putting pressure on consumers and businesses.

Although falling inflation and high employment rates once made people optimistic about the economic outlook, the recent higher-than-expected unemployment numbers in the United States and the Federal Reserve's slow interest rate cuts have made consumers worried about the future economic situation. Consumers and businesses have become more cautious due to the uncertainty of the economic outlook, and consumer demand has weakened, which has had a negative impact on corporate financial performance, and some companies such as Home Depot and McDonald's have reported signs of declining revenue.

Consumer spending accounts for about two-thirds of the U.S. economy. When consumers tighten their wallets, it can have a significant impact on businesses, which may take action to cut costs, often by laying off employees. Ordinary people have also shown a more cautious attitude towards spending, worried that high prices will affect their economic situation.

Aaron Arizmendi, who teaches Spanish at a private high school in Phoenix, gave up on plans to replace his 2009 Lexus in 2023. In recent years, he has also been very cautious about spending, worried that high prices would eat into his savings, and he has cut back on eating out and postponed some home renovations.Recent economic uncertainty has heightened this caution. "I'm much more careful about where I spend my money," said Arismendi, 41.