New York () — The Home Depot could no longer maintain its long and strong sales streak. The home goods retailer posted a disappointing quarter as consumer spending on home improvement projects, which has been buoyed by the pandemic stay-at-home lifestyle, came to a sharp halt.
The retailer posted disappointing first-quarter sales and lowered its outlook for the year after customers cut spending on home improvement projects. Home Depot said sales fell 4.5% at stores open at least a year during its most recent quarter, and revenue fell 6.4% from the same period a year earlier.
Total revenue for the quarter plunged 4.2% from a year earlier to $37.3 billion. The retailer also cited falling lumber prices and weather-related challenges, including heavy rains in California during the period, as reasons that dented its sales in the quarter.
“After a three-year period of unprecedented growth for our industry, during which we increased sales by more than $47 billion, we expected fiscal 2023 to be a year of moderation for the home improvement market” Ted Decker, CEO of The Home Depot, said Tuesday.
The company also lowered its sales expectations for the year. It expects sales to decline between 2% and 5%, in 2023, compared to the previous year. Shares of The Home Depot were down nearly 2% Tuesday morning.
The sharp turnaround for Home Depot comes after a long period in which it was among the few big winners during the pandemic. Housing spending became a priority for families as many Americans suddenly found themselves living, working and studying from home.
But just as people returned to some semblance of post-pandemic life, for Home Depot it’s been less of a celebration because money that might once have been spent on sprucing up and beautifying the home is now more freely spent on eating out, traveling, shopping and other whims.
As a result, Decker told analysts during a call Tuesday to discuss the company’s earnings that business from both its DIY and professional contractor clients in the quarter was lower than expected, as consumers they take on smaller home improvement projects, plus the impacts of higher interest rates and inflation.
“The newest thing in our observations this quarter is that while projects are still strong and the Pro pipeline is still high, project sizes are getting a little smaller,” Decker said during the call. “And it could be that projects are being pushed back or it could be that the project is being broken into stages. So instead of doing a whole room or a whole basement, you start working in smaller stages. And that clearly has an impact on items per basket in general activity”.
Neil Saunders, managing director of Global Data and a retail expert, said in a note on Tuesday that The Home Depot’s slowdown in sales “is somewhat worrying, as it reflects underlying weakness that is creeping into the economy.” .
In his opinion, the slowdown in activity in the housing market, “as higher interest rates deter some from refinancing to move or taking out mortgages for their first home,” may have a chilling effect on the home improvement category.
“The second factor is the general deterioration in spending, even among those who don’t move,” says Saunders. “The number of households undertaking projects continued to decline this quarter as people rein in discretionary spending and put off major remodels that sometimes require financing.”
Buying expensive appliances
According to The Home Depot, consumers are avoiding buying bigger and more expensive appliances.
“We’re seeing a continuation of the trend we saw in the fourth quarter, with consumers pulling back on large purchases and some discretionary purchases,” said Billy Bastek, The Home Depot’s executive vice president of Merchandising.
Bastek said demand in the quarter softened in categories such as flooring, kitchen and bathroom. “After a couple of years of record demand, we continue to see weakness in large consumer discretionary categories such as patios, grills and appliances, likely reflecting the postponement of these one-item purchases.”
According to the retailer, consumers are entering a transition period.
“Obviously, people aren’t spending as much time at home as in recent years,” Decker said. “And a new dynamic that we’re seeing is a more cautious consumer in the last quarter, which is consistent with what we’re seeing in our business. And finally, with the increase in inflation that we’ve seen, there’s certainly some sensitivity to prices, particularly with respect to the more expensive discretionary items… But regardless of all that, we’re going to get through this transition period.”
Target, Walmart and other retailers are also reporting results this week, giving investors and economists more insight into confidence among US consumers.
