For over two years now, Americans have been dealing with inflated prices, which can be especially frustrating as we're forced to shell out more for necessities. But while it feels like there's no end in sight, Home Depot suggests otherwise. During a recent earnings call, Richard McPhail, executive vice president and chief financial officer for Home Depot, claimed that "the worst" of inflation has actually come and gone. Read on to find out what the home improvement retailer had to say about the situation—and why you should still double-check your receipt.
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Home Depot numbers have taken a hit due to inflation.
ShutterstockHome Depot, like many other retailers, has seen a steep decline in discretionary spending as shoppers tighten their belts. But now, the home improvement company appears more optimistic.
During a Nov. 14 earnings call, McPhail said "the most important observation" the company made was that "the worst of the inflationary environment is behind us."
Billy Bastek, Home Depot's executive vice president of merchandising, echoed this, telling investors that "the inflation environment seems to be behind us." As a result, both McPhail and Bostick said that prices have "settled."
Home Depot might be on to something, too, as government data revealed that inflation was flat in October when compared with the month prior, CNBC reported.
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Don't expect all prices to fall right away.
Shutterstock/ZikGYou may be ready to go splurge on that appliance purchase you've been putting off, but be forewarned that "settling" prices don't automatically translate to lower prices.
"Retail prices are settling in the market," McPhail said. "Some prices are settling at levels higher than 2022, others are settling lower. But we're seeing some stabilization there."
In general, Ted Decker, Home Depot's chairman, president, and CEO, said that Home Depot is committed to maintaining low prices—and it will continue to run events and sales for Black Friday and other seasonal events. However, the company is pulling back on promotions that don't make a significant difference in margins.
"We prefer to be even less promotional than we are today," Decker said, using the example of painting a living room. According to Decker, labor (i.e. the painters) is often the largest expense for home improvement projects, so knocking off $10 for paint doesn't "really move the needle."
Bastek added, "From a promotional activity standpoint, it's really reverted back to pre-COVID times... Our pricing has certainly, as Ted mentioned, settled over the last several months. The environment certainly stabilized, so, you know, we operate in a very rational market and promotional environment, as I said, just as a return to kind of pre-pandemic times."
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Less inflation isn't beneficial for retailers right away.
Andriy Blokhin / ShutterstockAccording to CNBC, in the short-term, cooling inflation actually hurts retailers' sales numbers—and for the third quarter, Home Depot did report a 3 percent drop in sales and a 3.1 percent drop in same-store sales, when compared with the same period in 2022, per a Nov. 14 press release.
It's not likely that slowing inflation will have an immediate effect on Home Depot's margins this holiday season, either, as Michael Baker, a retail analyst at D.A. Davidson, told CNBC.
“Less inflation can invite back in some discretionary spending, but that’s offset by the fact it’s generally a pretty soft spending environment,” he said.
Still, in the long term, when prices fall or just stop increasing, it will leave shoppers with extra money to spend where they please, according to CNBC.
Executives called 2023 "a period of moderation."
During the earnings call, Decker said that 2023 was a "period of moderation for home improvement spend" and added that the company feels confident about the business and operations.
But even with cooling inflation and trust in their business model, Home Depot is still anticipating a loss for 2023. In the press release, the company narrowed its full-year outlook, anticipating same-store sales to fall between 3 and 4 percent, as opposed to between 2 and 5 percent.
