Shoppers Are Still Abandoning Home Depot, New Data Shows—Here's Why
Comparable sales were down for the fourth quarter in a row.
When you're in need of any sort of home improvement or construction materials, you can rely on your local Lowe's or Home Depot store to have what you need. These giant warehouses offer a wide selection, and typically have friendly employees ready to assist or offer advice. But Home Depot has been on a bit of a decline this year—and things don't appear to be looking up just yet, per new data. Read on to find out why shoppers are still abandoning Home Depot.
It's been a tough year for Home Depot.
So far in 2023, Home Depot's sales have trended downward. In May, the retailer revealed a 4.2 percent decrease in sales for the first quarter of the 2023 fiscal year—and in August, Home Depot reported $42.9 billion in sales for the second quarter, which represented a 2 percent drop in overall sales when compared with the same time period in 2022.
During an Aug. 15 earnings call, Home Depot CEO Ted Decker cited continued "pressure in certain big-ticket, discretionary categories." This was illustrated by a 5.5 percent decrease in comparable transactions for products over $1,000—specifically in the patio and appliances categories—compared with 2022, Billy Bastek, Home Depot's vice president of marketing, said on the call.
Numbers are down yet again.
According to a Nov. 14 press release outlining third-quarter sales, Home Depot reported $37.7 billion in sales, which was a 3 percent decrease from the same quarter in 2022.
Per CNBC, the latest results represent the fourth quarter in a row where Home Depot reported a fall in comparable sales (same-store sales), which were down 3.1 percent year over year. However, the outlet also reported that Home Depot did beat Wall Street's expectations in terms of sales and comparable sales.
Consumers still appear to be focused on smaller projects rather than big investments.
In the press release, Decker said the results were "in line with our expectations," again highlighting the decline in big-ticket purchases and customers' focus on smaller home projects.
"Similar to the second quarter, we saw continued customer engagement with smaller projects, and experienced pressure in certain big-ticket, discretionary categories," he said. "We remain very excited about our strategic initiatives and are committed to investing in the business to deliver the best interconnected shopping experience, capture wallet share with the Pro [loyalty program], and grow our store footprint."
Richard McPhail, chief financial officer for Home Depot, told CNBC in an interview that 2023 also represents "a period of moderation in home improvement."
"A customer who might have remodeled their entire home may be opting for a partial remodel," he told the outlet. "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."
The retailer faces challenges related to the housing market and inflation.
CNBC also points to other issues plaguing Home Depot, including high inflation, which has made renovations and big-ticket items more challenging to sell.
Higher mortgage rates are another factor, but executives aren't entirely sure how it's affecting sales. According to McPhail, customers aren't moving as often and investing in projects at new homes. But at the same time, some are taking on projects in their current homes where they have lower mortgage rates.
"We don't quite know how to quantify that balance," he told CNBC. "And obviously that's something we'll watch as we progress into next year."
Home Depot anticipated this dip following the pandemic.
Declining sales this year, as well as declining customer transactions—which fell to 399.8 million last quarter compared with 409.8 million during the same period last year—aren't necessarily surprising.
Home Depot anticipated this dip because of the sharp increase in big projects undertaken during the COVID pandemic. Compounding this, shoppers also shifted toward spending on experiences once the world opened back up.
However, with the numbers as they are, Home Depot narrowed its prior full-year outlook. Previously, the company anticipated sales and comparable sales to fall between 2 and 5 percent compared with 2022, but that range has shifted to between 3 and 4 percent. In terms of earnings per share, Home Depot now expects to see a 9 to 11 percent drop, compared with previous guidance of a 7 to 13 percent drop, per CNBC.
Still, according to McPhail, Home Depot has faith in its customer base.
"The consumer—and particularly the homeowning consumer who is our customer—is healthy," he told CNBC. "They're employed. They've seen income gains and wealth gains in recent years. They have excess savings and they remain engaged in home improvement."