Consumers are buying washers to fix leaky faucets rather than replacing the faucets themselves, and professional contractors are spending less overall on projects, Home Depot Inc. reported Tuesday.
The nation's largest home-improvement retailer said third quarter profit fell 9 percent as demand remained soft amid the weak housing market. No. 2 home-improvement chain Lowe's also reported a third-quarter drop in revenue and profit a day earlier.
"There is still a great deal of pressure in the housing and home improvement markets, though there are some positive signs of stabilization," said Home Depot CEO Frank Blake.
Cost cuts helped Home Depot top expectations and led it to raise its full-year earnings guidance, but the company did not raise its revenue outlook.
Investors sent shares down 4 percent amid growing concern that expense cuts can only boost earnings for so long before revenue needs to improve.
Home Depot and other home-improvement retailers have faced sales declines as consumers hold back on do-it-yourself projects amid worry over jobs and home values. Although the U.S. housing market is stabilizing, after a nearly three-year decline, home prices remain far below their peak.
Both Home Depot and Lowe's reported sequential improvement in some of the hardest-hit markets during the housing downturn, including Florida, California and Arizona.
Of Home Depot's top 40 markets, 36 showed sequential improvement in sales in stores open at least one year.
The average checkout receipt eased a bit in the quarter, falling 7.1 percent to $51.89, compared with 8.2 percent for the year to date. Sales in stores open at least one year, considered a key measurement for retailers because it excludes the effect of store expansions or closings, fell 6.9 percent.
Sales during the quarter were strong in paint, plumbing, flooring, garden, kitchen and bath and building materials, reflecting strength in smaller do-it-yourself projects.
Still, customers are more likely to buy a part to fix a leaky faucet rather than replace the whole faucet, CFO Carol Tome in an interview with the AP.
Sales of materials usually sold to professionals like plywood, dimensional lumber and concrete were weaker.
"Pro sales are under significantly more stress than DIY-oriented sales," according to data, Blake said. "And we have not yet seen sustained evidence of a recovery in the pro business."
Transactions of $900 and above, about 20 percent of U.S. sales, fell 10 percent, while transactions of $50 and below, also about 20 percent of U.S. sales, rose 2 percent.
Net income was $689 million, or 41 cents per share, for the quarter ended Nov. 1, topping analyst predictions of 36 cents per share, according to Thomson Reuters poll.
Revenue fell 8 percent to $16.36 billion, also ahead of the $16.27 billion analysts predicted.
BMO Capital Markets analyst Wayne Hood said the stock was reacting continued weak sales.
"Home Depot has done a fabulous job controlling expenses and should be commended for doing that," Hood said. "But at some point you've got to have topline growth, and we're nearer to that point than we were six months ago."
For the full year, Home Depot now expects earnings per share from continuing operations of about $1.50, or $1.55 excluding one-time items. That would be a 9.5 percent increase from last year, better than the company's previous expected range of flat to up 7 percent. Analysts expect earnings of $1.52 per share. The company didn't raise its forecast of a sales decline of 9 percent.
Shares fell $1.09, or 3.9 percent to $26.56 during midday trading.