The world's largest home-improvement retailer said it expects adjusted earnings per share to decline 5% from a year ago, lower than its previous forecast. The company said its profit and comparable sales came in lower than expected in the last quarter, citing the overall weakness in the housing market and a lack of storms that hampered demand in roofing, generators and other categories.

The company's shares fell as much as 5% on Tuesday. Its stock had dropped about 8% this year through Monday's close, compared to a 13% increase in the S&P 500 Index.

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Home Depot's bleak forecast provides another warning about the strength of US consumers in the absence of official economic data during the US government shutdown. Reports from Target Corp. and Walmart Inc. later this week will offer further insight into whether a cooling job market, corporate layoffs and inflation are triggering a broader spending pullback. 

"We had expected demand to begin accelerating gradually in the back half of the year as interest and mortgage rates eased. But what we see is ongoing consumer uncertainty and continued pressure in housing disproportionately impacting home improvement demand," Chief Financial Officer Richard McPhail said in an interview.

Frozen Market

The US housing market remains frozen for a number of reasons. Even though mortgage rates are lower than they were a year ago, Americans have been reluctant to make purchases as cost-of-living and economic concerns create new hurdles. Home prices remain high, meaning affordability is becoming more out-of-reach for consumers. 

High interest rates have also prompted US households to halt their plans to buy and remodel homes. Instead, many are taking on small projects, like painting and sprucing up their gardens, that don't require financing. That has slowed sales at Home Depot and other home-improvement companies.

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Tariffs have added to challenges for Home Depot, which is undergoing its first period of slowing sales in over a decade. While flooring, home appliances and other products have been subject to tariffs, the retailer has maintained pricing levels because most of its imported goods arrived before new levies were imposed. Still, the company has cautioned that some items would get more expensive later this year. 

Bloomberg Intelligence analyst Drew Reading wrote Tuesday that "elevated consumer uncertainty, a weak housing market and potential tariff impacts" will likely weigh on Home Depot's growth.

In an effort to grow operations, the Atlanta-based company has been boosting online offerings and expanding its business catering to professional contractors, who spend more than do-it-yourself consumers. Executives have said customers are deferring large purchases, but that they remain healthy because of their income gains in recent years and home price appreciation of 50% since 2019.

Still, comparable sales rose only 0.2%, missing analyst forecasts of 1.36%, and the company doesn't see signs of a major uptick anytime soon.

Demand remains steady, but has not picked up, McPhail said. There's positive momentum around holiday buying but the broader housing market has been soft due to high rates and affordability concerns and job concerns are impacting consumers, he said.