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Home Depot cut its sales outlook, the latest sign that U.S. consumers are reeling from higher interest rates.
The home hardware retailer said comparable sales would fall 3 to 4 percent this year, steeper than its previous forecast of a 1 percent decline.
The cut to Home Depot’s guidance comes after years of strong inflation stretched American households’ finances. Companies from McDonald’s to Disney have already expressed consumers’ growing wariness.
A major factor weighing on Home Depot’s sales is higher interest rates, said Chief Financial Officer Richard McPhail. The Federal Reserve has raised benchmark rates from zero to more than 5 percent over the past two years in an effort to control inflation.
Many Home Depot customers are homeowners who often finance large projects with debt, McPhail said. From mid-2023 they are back.
“They have this deferral mentality, waiting until the cost of borrowing comes 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 right now, as are higher interest rates,” McPhail said. “If you think about the crowding out of the stuff that’s sustained inflation, unemployment is starting to pick up again. [and] The general unrest is affecting our customers.”
Homeowners who took out mortgages when rates were low stayed in many cases. With many major repairs occurring as homes change hands, the drop in turnover has “taken more than $10bn of demand out of our market”, McPhail added.
Pressure on sales at the start of the pandemic follows double-digit growth, with households with surplus savings — and many workers working from home — splashing out on major renovations.
Between fiscal years 2019 and 2022, Home Depot’s sales will increase by $47bn to $157.4bn. The company has more than 2,300 stores in North America.
Home Depot’s sales for the second quarter ended in late July were $43.2 billion, the company said Tuesday, up 0.6 percent year-over-year.
Comparable sales, which include stores open at least a year, fell 3.3 percent in the quarter. During the quarter Home Depot completed a deal to acquire SRS Supply, a building supply company for professional contractors, for an enterprise value of $18.25bn.
Home Depot’s net profit was $4.6bn, beating estimates but down 2.1 per cent from the same quarter a year ago as costs rose.
Shares of Home Depot were down 0.2 percent at $345.02 in after-hours trading on Wall Street on Tuesday.
