Home Depot has slashed its outlook for sales, the latest sign that US consumers are pulling back at a time of high interest rates.
The home hardware retailer said comparable sales would fall by 3 to 4 per cent this year, steeper than its previous forecast of a 1 per cent decline.
The cut to Home Depot’s guidance comes after years of strong inflation stretched the finances of US households. Companies from McDonald’s to Disney have already revealed growing caution by consumers.
A key factor weighing on Home Depot’s sales has been higher interest rates, said Richard McPhail, chief financial officer. The Federal Reserve has lifted benchmark rates from zero to more than 5 per cent in the past two years in an effort to quell inflation.
Many Home Depot customers are homeowners, and they often finance large projects with debt, McPhail said. Since mid-2023 they have been holding back.
“They have this deferral mindset waiting for the cost of borrowing to go down,” McPhail said in an interview.
However, in the first half of 2024, “our customers are now telling us that general economic uncertainty is weighing on their minds just as much as higher interest rates”, McPhail said. “If you think about the crowding-out that inflation is creating in durable goods, unemployment is beginning to tick up again, [and] just general unease is having an influence on our customers.”
Homeowners who took out mortgages when rates were lower are in many cases staying put. As many big repairs occur when homes change hands, the decrease in turnover has “taken out what’s likely over $10bn in demand in our market”, McPhail added.
The pressure on sales follows double-digit growth early in the pandemic, as households with surplus savings — and many employees working from home — splashed out on major renovations.
Between fiscal 2019 and 2022, Home Depot’s sales grew by $47bn to $157.4bn. The company has more than 2,300 stores in North America.
Home Depot’s sales totalled $43.2bn in the second quarter that ended in late July, the company said on Tuesday, up 0.6 per cent year on year.
Comparable sales, which cover stores open for at least a year, declined 3.3 per cent in the quarter. During the quarter Home Depot closed a deal to acquire SRS Distribution, a building supply company for professional contractors, at an enterprise value of $18.25bn.
Home Depot’s net profit was $4.6bn, beating estimates but 2.1 per cent lower than the same quarter a year ago, as costs rose.
Shares of Home Depot reversed early declines to close 1.2 per cent higher on Tuesday in New York.