Home Depot’s botched renovation

Like every home improvement project in all of history, Home Depot’s transformation is taking longer than expected.

For the third straight quarter, Home Depot missed earnings expectations after comparable sales only grew 0.2%, missing analyst expectations of a 1.4% increase. On top of that, the home improvement retailer cut its full-year outlook.

Shares sank 6.02% today.

Go big, or just go home?

In the earnings call, management blamed the poor showing on weaker demand for home improvement products due to a broader consumer spending slowdown. But of course, the housing market is playing a role, too.

Usually, Home Depot gains a significant portion of its business from renovations that take place before or after selling or moving into a new home. But with higher interest rates over the past few years, taking out a mortgage has become more expensive, pushing homeowners into a “deferral mindset” for renovations, CFO Richard McPhail told CNBC.

The combination of both a lagging labor market and falling home prices are causing consumers to rethink big investments in home upgrades.

A perfect storm: On top of all of that, fewer hurricanes last quarter meant fewer people were heading to Home Depot to buy supplies to fix storm damage.

The truth is, there isn’t a quick fix to what ails Home Depot. For instance, even though mortgage rates have slipped slightly, it hasn’t resulted in a pickup for the business.

“We’re watching movements in mortgage rates closely,” CEO Ted Decker said in the earnings call. “While we don’t see a near-term catalyst for acceleration of home-improvement demand, we’re also bullish on the long-term fundamentals of housing.”

Decker’s still optimistic about a comeback. He noted that as homes get older and home prices continue to appreciate, he sees a turnaround on the way. When it will materialize, however, is a different matter entirely.—LB