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Home Depot sharply cut its sales outlook, the latest sign that U.S. consumers are cutting back on shopping amid high interest rates.
The home hardware retailer now expects same-store sales to fall 3% to 4% this year, a sharper decline than its previous forecast of a 1% decline.
Home Depot’s downgrade comes after years of high inflation have squeezed U.S. household finances. Companies from McDonald’s to Disney have already signaled growing consumer caution.
The main factor weighing on Home Depot’s sales is rising interest rates, said Chief Financial Officer Richard McPhail. The Federal Reserve has raised interest rates from zero to more than 5% over the past two years to tame inflation.
Many of Home Depot’s customers are homeowners who often finance big projects with debt, McPhail said, and they’ve been holding off on buying since mid-2023.
“They have a postponement mentality of waiting for borrowing costs to come down,” McPhail said in an interview.
But in the first half of 2024, “our clients are telling us that general economic uncertainty is a concern as much as rising interest rates,” McPhail said. “Given the crowding out that inflation is having on durable goods, unemployment is starting to rise again and general anxiety is impacting our clients.”
Many homeowners who took out mortgages when interest rates were low are sticking around. Because homes change hands and often require major repairs, the decline in sales has “eliminated demand in what was probably a $10 billion-plus housing market,” McPhail added.
Sales have come under increasing pressure since recording double-digit growth early in the pandemic as households with excess savings and many employees working from home spent big on major renovations.
Home Depot’s sales are expected to increase by $47 billion from fiscal 2019 to fiscal 2022, reaching $157.4 billion. The company operates more than 2,300 stores across North America.
Home Depot said on Tuesday that sales for the second quarter that ended in late July rose to $43.2 billion, up 0.6% from the same period a year ago.
Same-store sales, which include stores open at least a year, fell 3.3% for the quarter.Home Depot also closed the quarter on a deal to buy SRS Distribution, a professional building supplies company, for an enterprise value of $18.25 billion.
Home Depot’s net income was $4.6 billion, beating expectations but down 2.1 percent from a year earlier due to rising costs.
Home Depot shares fell 0.2% to $345.02 shortly after the open on Wall Street on Tuesday.
