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As anticipated, demand for home improvement products and projects remains subdued, as reflected by Home Depot's (HD) comparable sales decline of 3.3%, which missed analysts' expectations, and its downwardly revised FY25 revenue and comp guidance. For HD and rival Lowe's (LOW), the story remains much the same as persistently high interest rates, a sluggish housing market, and macroeconomic uncertainties continue to prevent consumers from making big ticket purchases.

• Like last quarter, both foot traffic and average ticket declined in Q2, falling by 1.8% and 1.3%, respectively. Unfortunately, HD doesn't expect the demand environment to improve over the remainder of its fiscal year, forecasting FY25 comps to decline between 3% and 4%. That projection is down from its prior guidance for a decline of approximately 1%.
• Additionally, HD also cut its FY25 EPS guidance, despite the fact that it beat Q2 EPS estimates by a comfortable margin. Specifically, the company now expects EPS to decrease by 1-3% compared to its previous outlook of a drop of 1%. The reduced earnings outlook appears to be a function of its $18.25 bln acquisition of SRS Distribution from this past March. When HD announced the acquisition, it disclosed that the transaction was expected to be dilutive to GAAP EPS due to amortization expense.
• On the flip side, HD raised its FY25 revenue guidance to reflect the impact from the SRS Distribution acquisition. The company now sees revenue growth of 2.5-3.5%, up from growth of 1%.
• From a strategic perspective, the addition of SRS Distribution will expand HD's Pro business and capabilities, providing it with exposure to larger-scale, more complex projects. It will also help to fend off rival LOW, which has been making a strong push into the Pro business over the past few years. On August 20, LOW is scheduled to report its Q2 results and expectations will be muted in the wake of HD's performance.
• Shares of HD and LOW are taking HD's soft results and guidance in stride, though, partly because of those tempered expectations. Also, the market is looking ahead to when the Fed eventually does cut rates, providing a likely boost to the home improvement retail market. Lower rates would help make large scale projects more affordable, and they might entice more homeowners to put their current homes on the market, which typically requires some home improvement activities.

The main takeaway is that business is stuck in a bit of a rut right now for HD, but the longer-term picture is still bright due to the underlying healthy dynamics for the home improvement category and the potential to gain more market share as HD integrates its SRS Distribution acquisition.