HD inline headline numbers, with slowing trends. Comps slowed to -3.1% vs -2% last Q and against an easier compare, though that was slightly better than the street. EBIT down 14% YY, slowing from down 9% last Q. EPS down 10% YY, slowing from down 8%. Importantly, average ticket went negative for the first time since the pandemic at -0.3% and transactions down 2.7%. We think you continue to see price and ticket pressure with transactions still negative. The company is guiding to a pretty steady rate of change at the midpoint for 4Q, despite a much easier compare. And even with the company highlighting its narrowed range, the 4Q comp range implied in the annual guide is still roughly -1% to -6%--a wide outcome range for 4Q.
We think this company is still benefitting from the late innings of pro-labor backlog, which presents a risk to comps going forward. Interestingly the company talked about the performance of Pro and Customer facing sales being very similar this Q. The backlog is likely fading. Despite being teased several times to touch on it, management said nothing around the 2024 outlook, other than to say its $500mm in planned expense savings remains as an offset, and that margin performance will mainly be a related to sales performance in ’24. This is the area we see the biggest divergence in our model vs expectations as we think comps can be down MSD in 2024, while the consensus has positive comps. We walk through how we get to that comp trend in our Home Improvement Deep Dive from a month ago. We continue to see sales and earnings risk here with stock downside risk to around $200 vs current $307.
For the replay of our call on the home improvement demand risk and scenario analysis, see our Home Improvement Deep Dive Video Replay and Slide Deck Link CLICK HERE
