Home Depot's sales for the second quarter increased modestly. This was due in part to the $18 billion acquisition earlier this year that made the company the largest home improvement retailer. However, consumers continued to reduce their spending as a result of rising prices and higher interest rates.

Revenue increased slightly to $43.18 billion, up from $42.92 billion, exceeding analysts' expectations of $42.57 billion, as per a survey conducted by Zacks Investment Research.

The company's financial performance for the quarter was better than before, partly due to the purchase of SRS Distribution , which added $1.3 billion to Home Depot’s revenue for the period. SRS supplies materials to professionals such as roofers, landscapers, and pool contractors.

Home Depot's strategic move to acquire SRS Distribution to enhance its proficiency in specialized product categories is a positive step that expands its customer base. Integrating SRS is expected to yield long-term revenue growth and improved profitability, while also establishing a distinct advantage over competitors like Lowe's, who are also targeting professional customers.

The strong performance helped Home Depot overcome a recent decline in sales. In the first quarter, Home Depot ’s revenue dipped 2.3% to $36.42 billion as the Atlanta-based company navigated challenges posed by high mortgage rates, inflation, and a delayed spring season. This marked the third consecutive quarter of sales decline for the retailer, which experienced a surge in sales during the pandemic as numerous individuals invested more in their homes.

Customer spending declined by 1.8% during the quarter, and the average purchase amount also decreased, coming in at $88.90 compared to $90.07 during the same period last year.

Home Depot's CEO and Chairman, Ted Decker, mentioned during their conference call that the company saw a decline in spring home improvement projects. This was impacted by severe weather fluctuations during the quarter.

Furthermore, sales at stores operating for at least a year, a crucial indicator of a retailer's performance, decreased by 3.3% during the quarter. In the United States, this figure dropped by 3.6%.

The retailer now anticipates that sales at stores open for at least a year will decrease by 3% to 4% in 2024. The company's previous projection was for a decrease of roughly 1%. Home Depot expects full-year earnings per share to drop by 2% to 4%. The company's previous forecast predicted earnings per share growth of approximately 1%. Total sales for the year, the company stated, are projected to increase by 2.5% to 3.5%. Its previous guidance was for an increase of about 1%.

Saunders indicated that Home Depot's adjusted forecast reflects a pessimistic view of consumer spending from company executives and a more conservative approach to interest rate reductions by the Federal Reserve than anticipated earlier in the year.

Home Depot stock experienced a modest increase in value during the early trading hours on Tuesday.

"Despite strong long-term factors driving home improvement demand, recent economic conditions have led to a decline in consumer spending on these projects," Decker stated in a prepared statement on Tuesday. "Rising interest rates and broader economic concerns have impacted consumer confidence, resulting in reduced investment in home improvements."

Home improvement stores such as Home Depot have been impacted by homeowners delaying larger projects because of rising interest rates and persistent worries about inflation.

Higher interest rates on mortgages, which can increase monthly costs for borrowers by hundreds of dollars, have been discouraging home buyers for some time, prolonging the national housing downturn into its third year.

Transactions involving previously owned U.S. residences declined for the fourth consecutive month in June. Furthermore, sales of newly constructed single-family homes experienced a dip last month, reaching the slowest annual rate since November.

“Changes in interest rates have a more significant impact on Home Depot compared to a typical retailer, primarily because a considerable portion of home improvement demand is linked to the housing market,” Saunders explained. “Elevated interest rates have served as, and continue to be, a factor that restrains home purchases.”

In the quarter ending July 28, Home Depot Inc. reported net income of $4.56 billion, equivalent to $4.60 per share. This compares to $4.66 billion, or $4.65 per share, earned in the same period last year.

Excluding specific items, earnings reached $4.67 per share. Analyst expectations were for $4.54 per share.