Home Depot Inc. reported sales and profit that exceeded expectations, but a decline in the volume of transactions suggests that growth is being driven by inflation rather than a jump in unit sales. 

The average customer ticket was about US$89 in the third quarter, almost nine per cent higher than a year earlier. At the same time, transactions declined 4.3 per cent. Same-store sales -- a key gauge of retail success -- and earnings per share surpassed Wall Street estimates.  

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“Growth was driven exclusively by higher average tickets due to product inflation and likely continued strength among pro customers,” Bloomberg Intelligence Senior Industry Analyst Drew Reading said in a note. The drop in transactions “could remain pressured as home sales suffer a sharp slowdown. “

Home Depot’s fortunes are closely intertwined with those of the US housing market. Home sales have slowed amid a surge in interest rates as policy makers seek to blunt the highest inflation in decades. About four in five consumers now describe buying conditions for homes as bad, according to the University of Michigan’s consumer sentiment survey for November. 

Even so, Home Depot has benefitted from a backlog of contracted jobs that piled up during the pandemic.

“We’ll continue to take share in any operating environment,” Chief Executive Officer Ted Decker said on the company’s call with analysts. “We still feel the backdrop of housing, the fundamental shortage of housing in this country and the aging of homes is incredibly strong for our space in the medium to long term.”

Decker said shoppers remain “resilient and engaged,” while Chief Financial Officer Richard McPhail said that higher mortgage rates mean that home owners are more likely to stay put in their homes and start new improvement projects there.  

Home Depot’s comparable sales rose 4.3 per cent in the quarter ended Oct. 31, surpassing the three per cent gain from analysts surveyed by Bloomberg. Earnings per share of US$4.24 also beat the estimate.

The shares alternated between losses and gains in New York trading. Home Depot’s stock had fallen about 28 per cent so far this year through Monday’s close, compared with a 17 per cent drop in the S&P 500 Index.

Home Depot maintained its guidance for the full year, saying earnings per share will likely grow by a mid-single-digit percentage.

Cowen analysts led by Max Rakhlenko said Home Depot may be “better positioned into a more choppy backdrop given its higher Pro mix and ability to take Pro share,” referring to the company’s efforts to lock in lucrative business from professional contractors. The company’s decision to maintain its outlook is “likely conservative with an opportunity to outperform,” he wrote. 

Home Depot executives noted on the analyst call that while both individual and professional customers both grew in the third quarter, pros grew “meaningfully faster.”