Home Depot (HD) is the latest major retailer to become a victim of a growing trend that is beginning to put a damper on its sales.
In Home Depot’s second-quarter earnings report for 2024, it revealed that its comparable sales in the U.S. declined by 3.6%, compared to the same time period last year. Also, the amount of money customers are spending at its stores decreased by 1.3%.
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While sales declined, the company’s operating income, which is how much a company makes after expenses, dipped by 0.8%, and its net earnings also decreased by about 2%.
Consumers are spending less on home upgrades
During a recent earnings call, which discussed the report, Home Depot CEO Ted Decker said that the company is starting to notice that consumers are pulling back on funding large home improvement projects, which usually involve kitchen and bath remodels.
“During the quarter, higher interest rates and greater macroeconomic uncertainty pressured consumer demand more broadly, resulting in weaker spend across home improvement projects,” said Decker. “Additionally, we saw continued softness in spring projects, which were also impacted by the extreme weather changes throughout the quarter.”
Decker also claimed that volatility in the housing market, such as low housing turnover, is encouraging this troubling decline in consumer spending.
“The higher interest rate started to impact the housing market in housing turnover in particular, which is down some 40%,” said Decker. “And I think last quarter, last month, we saw numbers that on an annualized basis, we're approaching 40-year lows. That's also impacting customers' interest in financing larger projects.”
As the housing market is losing its affordability, a growing number of consumers have refrained from buying homes. In June, existing-home sales declined by 5.4% as the median sales price reached $426,900, the “highest price ever recorded,” according to a recent report from the National Association of Realtors.
"We're seeing a slow shift from a seller's market to a buyer's market," said NAR Chief Economist Lawrence Yun in the report. "Homes are sitting on the market a bit longer, and sellers are receiving fewer offers.”
During the earnings call, Decker also acknowledged that “macroeconomic” pressures are also causing consumers to be more cautious with their finances.
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“There's just a lot of noise with political and geopolitical environment, unemployment ticked up, inflation keeps eating away at disposable income,” said Decker. “And I think people just took a pause as we progress through the quarter or more of a pause because of these macro uncertainties.”
As prices for goods and services have increased rapidly over the past four years, the unemployment rate has also been creeping back up since it peaked at 14.8% in April 2020. The unemployment rate reached 4.3% in July this year, after reaching a low of 3.4% in January 2023.
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Home Depot overall predicts that the decline in comparable sales will continue for the rest of the 2024 fiscal year. In its earnings report, it states that it expects comparable sales to shrink between 3% and 4% due to waning consumer demand.
The revelation from Home Depot comes after Wayfair (W) , a home goods company, revealed that it is also facing a dip in its sales and profits due to a tight housing market.
“While you've seen many of our peers that are impacted by housing declined to an even greater degree than Wayfair, at the end of the day, with housing turnover levels that haven't been as depressed since the great financial crisis, the market fatigue weighs on everyone in the category, ourselves included,” said Wayfair CEO Niraj Shah during an earnings call on Aug. 1.
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