Home Depot cuts sales forecast due to weaker consumer spending

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Home Depot has significantly lowered its sales forecast – another sign that U.S. consumers are holding back in times of high interest rates.

The home improvement retailer said comparable sales would fall three to four percent this year, even more than its previous forecast of a one percent decline.

Home Depot’s forecast cut comes after years of high inflation have strained U.S. household finances, and companies from McDonald’s to Disney have already signaled growing consumer caution.

A key factor weighing on Home Depot’s sales is higher interest rates, said Chief Financial Officer Richard McPhail. The US Federal Reserve has raised interest rates from zero to over five percent in the past two years to curb inflation.

Many Home Depot customers are homeowners and often finance large projects with loans, McPhail said. They have been holding off since mid-2023.

“They have this forbearance mentality and are waiting for the cost of borrowing to go down,” McPhail said in an interview.

But in the first half of 2024, “our clients are now telling us that general economic uncertainty is weighing on them as much as higher interest rates,” McPhail said. “When you think about the crowding out that inflation is causing in durable goods, unemployment is starting to rise again, (and) just general unrest is impacting our clients.”

Homeowners who took out mortgages when interest rates were lower are, in many cases, staying in their homes. Since many major repairs occur when homes change hands, the drop in sales has “probably wiped out over $10 billion in demand in our market,” McPhail added.

The pressure on sales follows double-digit growth earlier in the pandemic, when households with excess savings – and many workers working from home – spent money on major renovations.

Between fiscal years 2019 and 2022, Home Depot’s revenue increased by $47 billion to $157.4 billion. The company has more than 2,300 stores in North America.

Home Depot’s sales totaled $43.2 billion in the second quarter ended in July, the company said Tuesday, up 0.6 percent from the previous year.

Comparable sales, which cover stores open at least a year, declined 3.3 percent in the quarter. During the quarter, Home Depot completed a deal to acquire SRS Distribution, a building materials company for professional contractors, for an enterprise value of $18.25 billion.

Home Depot’s net income was $4.6 billion, beating estimates but down 2.1 percent from the same quarter last year due to increased costs.

Home Depot shares fell 0.2 percent to $345.02 shortly after trading began on Wall Street on Tuesday.