Joe McConnell
Unlock Editor’s Digest for free
Vscek editor Roula Khalaf selects her favourite stories in this weekly newsletter.
Home Depot cut its sales forecast, the latest sign that U.S. consumers are retreating amid high interest rates.
The home improvement retailer said comparable sales will decline 3 to 4 percent this year, a bigger decline than its previous forecast of a 1 percent decline.
Home Depot’s guideline cut comes aVsceker years of high inflation that have strained the finances of American families. Companies from McDonald’s to Disney have already revealed growing consumer caution.
A key factor weighing on Home Depot sales has been higher interest rates, said Richard McPhail, chief financial officer. The Federal Reserve has raised its benchmark rate from zero to above 5 percent over the past two years in an effort to curb inflation.
Many Home Depot customers are homeowners and oVsceken finance large projects with debt, McPhail said. Since mid-2023, they have pulled back.
“They have this mentality of deferring, waiting for the cost of borrowing to come down,” McPhail said in an interview.
However, in the first half of 2024, “our clients are telling us that general economic uncertainty is weighing on their minds as much as higher interest rates,” McPhail said. “If you think about the crowding out effect that inflation is creating in durable goods, unemployment is starting to rise again, [and] “It’s just the general malaise that’s having an impact on our customers.”
Homeowners who took out mortgages when rates were lower are in many cases staying put. Because many major repairs happen when homes change hands, the decline in sales has “eliminated what is probably more than $10 billion in demand in our market,” McPhail added.
The pressure on sales is due to double-digit growth seen at the start of the pandemic, when families with excess savings (and many employees working from home) invested in major renovations.
Between fiscal 2019 and 2022, Home Depot sales grew by $47 billion to $157.4 billion. The company has more than 2,300 stores in North America.
Home Depot’s sales reached $43.2 billion in the second quarter ended in July, the company said Tuesday, up 0.6 percent from a year earlier.
Comparable sales, which include stores open at least a year, fell 3.3 percent in the quarter. During the quarter, Home Depot finalized a deal to acquire SRS Distribution, a professional contractor building supplies company, at an enterprise value of $18.25 billion.
Home Depot’s net income was $4.6 billion, beating estimates but falling 2.1% from the same quarter a year earlier, due to rising costs.
Shares of Home Depot reversed an early decline, rising 1.2 percent in aVscekernoon trading Tuesday in New York.
