The Home Depot reported its largest revenue miss in more than 20 years on Tuesday after lowering its forecast for this year.
Key Details
- Homeowners are delaying projects and purchasing fewer large items like grills and patio sets as the cost of living rises.
- Cold weather at the beginning of the year and reduced lumber prices also affected the home-improvement store’s sales, CNBC reports.
- The Home Depot has not had a quarterly miss of this size since 2002.
Why it’s news
The Home Depot does not expect its sales to improve any time soon. The company is now projecting a sales decline between 2% and 5% for the fiscal year. Its previous predictions projected a relatively flat sales period. This year, the operating margin rate may also be lower—around 14% to 14.3% rather than the previous projection of 14.5%.
Company CFO Richard McPhail told CNBC that the home-improvement store would enter a “year of moderation.” During the pandemic, Americans invested heavily in home-improvement projects. However, now that most have returned to work and the cost of living has risen, fewer are looking to start expensive renovation projects.
The Home Depot’s annual sales have grown by $47 billion in the last three years. While the company was prepared for a drop in sales, rising mortgage rates and a change in consumer spending have made the sales decline more extreme than the company expected, CNBC reports.
“The state of the homeowner is that they’re very healthy,” McPhail says. “They have healthy balance sheets. They have healthy incomes. But I do think—and our professional customers tell us they hear this from their customers—there is that shift, even if it’s temporary, from larger projects into smaller ones.”
This quarter is the second in a row that The Home Depot has failed to meet Wall Street’s revenue projections. When the company missed expectations last quarter, it was the first time since November 2019.
Falling lumber prices are partly to blame for the reduced revenue. Do-it-yourself customer sales were higher than professionals, but sales in both categories were reduced, CNBC reports.
Spring is typically a profitable time for home improvement stores as the warmer weather prompts customers to start home improvement or gardening projects. Yet greater expenses and changing consumer spending habits have altered this pattern somewhat this year—and not just for The Home Depot.
Higher mortgage rates have put off potential buyers who would otherwise be looking to refresh a newly bought home. Groceries and other essential items now cost more, prompting homeowners to cut back on additional spending.
Consumers are also more interested in spending on services and experiences now rather than on the goods home improvement stores can offer.
However, McPhail predicts that this drop in sales is temporary.
“Once we’re through this period, we think the medium to long-term fundamentals of home improvement are strong,” he says.
