With consumer inflation still on the rise, Home Depot has adjusted its sales projections for the year – the first time it has projected a decline since 2009.
The home improvement chain previously expected a 7 to 13% earnings per share drop and 2 to 5% decline in same-store sales for 2023. It has since narrowed these predictions to a 9-11% drop in earnings and 3-4% drop in same-store sales.
Much of this is due to high mortgage rates keeping people in their current homes, and inflation putting larger home improvement projects out of reach for potential spenders. Transactions have dropped 2.4%.
“Similar to the second quarter, we saw continued customer engagement with smaller projects, and experienced pressure in certain big-ticket, discretionary categories,” said CEO Ted Decker in a statement.
Many of these “big-ticket” purchases are typically bought through credit – which has become significantly expensive at the current interest rate of about 5.4%, the highest in over twenty years.
“A customer who might have remodeled their entire home may be opting for a partial remodel,” CFO Richard McPhail said in a CNBC interview. “Maybe they won’t redo their entire kitchen. Maybe they’ll just do the countertop and backsplash. And so it’s really just the downscaling of projects that we’ve seen.”
However, “the consumer — and particularly the homeowning consumer who is our customer — is healthy,” McPhail added.
Fortunately for Home Depot, a better-than-expected third quarter also gave it a 7% “sigh of relief” boost in share price on Tuesday.
Despite the decline, it has so far made $3.81 billion this year, down from $4.34 billion last year.