The Home Depot has ended its five-quarter streak of sales declines but expects negative sentiment to continue in the months ahead.

Sales of the home improvement retailer for the second quarter was $43.2 billion, a slight increase of 0.6 per cent year on year. The growth was largely thanks to the acquisition of roofing and building supplies firm SRS Distribution, which added $1.3 billion to total sales.

When the contribution from SRS is removed, however, sales shrunk by 2.4 per cent. US comparable sales also fell 3.6 per cent.

“During the quarter, higher interest rates and greater macro-economic uncertainty pressured consumer demand more broadly, resulting in weaker spend across home improvement projects,” said Ted Decker, chair, president and CEO. 

The company has revised down its guidance for the full year, expecting comparable sales to drop by 3-4 per cent compared to the 1 per cent decrease in previous outlook.

“This suggests more negative sentiment around the consumer economy from management and reflects a more cautious rate cutting stance from the Fed than was expected earlier in the year,” commented GlobalData MD Neil Saunders.

Interest rate decisions matter more to Home Depot than they do to an average retailer, as home improvement demand is largely tied to the housing market, Saunders continued.

Sales of homes dropped 5.7 per cent, due to growing consumer concerns around finances and high interest rates. 

General DIY demand continues to decline, with improvement projects undertaken during the quarter falling 2.1 per cent. While the declines were sharp in big remodelling projects, smaller ones, like general decoration and painting, held up a little better, according to Saunders.

On the professional side, demand is stronger, but there are modest signs of a pullback in some categories. The decision to expand in specialist categories via the SRS Distribution acquisition is to be welcomed as this adds a new base of customers, the analyst said.

“Home Depot remains a very solid business with an assured place in the home improvement market. Unfortunately, it looks like the choppy seas it has been navigating will continue for the rest of this fiscal year,” Saunders concluded.