Home Depot Inc.’s string of negative sales extended into a sixth straight quarter as the big-box retailer struggles to overcome a weak housing market and lower demand for big-ticket items.
Same-store sales, which investors use to track performance at locations open for at least a year, fell 2.8% in the company’s fiscal first quarter, a bigger drop than analysts were expecting. The Atlanta-based company was hit by “continued softness in certain larger discretionary projects” and a delayed start to spring, Chief Executive Officer Ted Decker said in a statement Tuesday.
Transactions over $1,000, such as for kitchen and bathroom remodeling, were down 6.5% in the most recent quarter versus a year ago, executives told analysts on an earnings call. That’s because those large and discretionary projects typically need financing, they said.
“The current challenges are all caused by a period of churn in the consumer economy rather than by any missteps the company has made,” wrote Neil Saunders, managing director at GlobalData, in a note.
The retailer’s sales have fallen as inflation and high interest rates hamper housing demand. Consumers are also holding off on renovating and changing their homes after rushing to do so during the pandemic, instead prioritizing essentials.
Total sales including new openings fell 2.3% to $36.4 billion. Same-store sales were worse in the US, Home Depot’s main market, where they dropped 3.2%. The company also has stores in Canada and Mexico. Diluted earnings per share declined 5% year-on-year in the quarter to $3.63.
Pull back
Americans are pulling back on large home remodeling projects, like bathrooms and kitchens, and that is hitting Home Depot, said Neil Saunders, managing director of GlobalData.
“Many more households are reluctant to undertake activity due to financial constraints or the higher cost of using credit to pay for work,” Saunders said in an email. “We are also detecting some hesitation among consumers who hope to move in the future so do not want to undertake big improvement projects in the homes they currently live in.”
While people are still spending money on less expensive home decor projects, Saunders says Home Depot faces more competition in that area from garden centers, paint specialists and others and consumers are shopping around for the best bargains and deals.
The professional side of Home Depot’s business is stronger, but Saunders says there’s still some pockets of softness.
“Overall, Home Depot remains a formidable business. The current challenges are all caused by a period of churn in the consumer economy rather than by any missteps the company has made. Even so, we think the year ahead will be one of continued reset,” he said.
Pro focus
Home Depot is focused on the professional builder and contractor side of its business and catering to the needs of those customers.
In March Home Depot announced that it was buying SRS Distribution, a materials provider for professionals, in a deal valued at approximately $18.25 billion including debt. SRS provides materials for professionals like roofers, landscapers and pool contractors.
Ann-Marie Campbell, senior executive vice president, said during the company’s conference call that later this year, Home Depot will provide a way for professionals to be able to have big, bulky items and other goods that need be returned picked up at their job sites.
“This is a massive win not only for pros but also for associates and our stores, and will drive better customer satisfaction and greater store productivity,” she said.
Bloomberg and Associated Press contributed to this report.
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