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November 21, 2024
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Home Depot Says Consumers Are Pulling Back Amid Economic Uncertainty

The Epoch Times

Home Depot lowers its sales forecast as economic uncertainty pressures consumers to cut back on major home renovation projects.

Home Depot executives say consumers are feeling pressured by economic uncertainty and are spending less on major home renovation projects, leading the consumer spending bellwether to lower its forecast for a key sales metric deeper into negative territory.

The world’s largest home-improvement retailer reported its second-quarter results on Aug. 13, notching sales of $43.18 billion, a 0.6 percent increase that bettered Wall Street bets for $42.57 billion and snapped a first-quarter sales slump of 2.3 percent.

Key to the sales jump was the acquisition of contract supplier SRS Distribution, which added $1.3 billion to Home Depot’s sales in the second quarter.

Prior to the second-quarter recovery, the company reported three consecutive quarters of falling sales.

Consumer transactions fell 1.8 percent in the second quarter, and customers spent less, with the average ticket declining from $90.07 in the year-ago quarter to $88.90.

“Big-ticket comp transactions for those over $1,000 were down 5.8 percent compared to the second quarter of last year,” Billy Bastek, the company’s executive vice president of merchandising, said on an earnings call with reporters. “We continued to see softer engagement in larger discretionary projects where customers typically use financing to fund the project, such as kitchen and bathroom models.”

Borrowing costs are elevated amid the Federal Reserve’s fight against inflation, which has sent interest rates to their highest levels since the financial crisis of 2008–09. This has led to a cooling of the economy and a softening in consumer demand, especially in credit-dependent areas.

“During the quarter, higher interest rates and greater macroeconomic uncertainty pressured consumer demand more broadly resulting in weaker spend across home improvement projects,” Home Depot CEO Ted Decker said on the call.

Comp sales at Home Depot—a key metric that compares sales between stores open at least one year—declined 3.3 percent in the second quarter, with softening in consumer demand leading the company to lower its forecast. Previously, the company expected a comp sales decline of 1 percent, which has been revised downward to a deeper slump of between 3–4 percent.

“When we look at the performance in the first six months of the year, as well as continued uncertainty around underlying consumer demand, we believe a more cautious sales outlook is warranted for the year,” Decker said.

Home Depot’s updated forecast “appears reasonable—if not conservative—and should de-risk the outlook and the stock from here,” Wedbush analyst Seth Basham wrote in a note.

Shares of Home Depot were up around 1.5 percent ahead of the closing bell on Aug. 13

Despite the company’s forecast downgrade, Decker expressed confidence that demand would recover.

“The underlying long-term fundamentals supporting home-improvement demand are strong,” Decker said in a prepared statement, adding during the post-earnings call that customers are deferring larger projects because “everyone’s expecting rates are going to fall.”
Expectations have been building that the Fed will lower rates, with investors putting the odds of a 50 basis-point cut at the rate-setting meeting on Sept. 18 at around 54.5 percent, and a slight majority expecting a second, smaller 25 basis-point reduction at the beginning of November.
Home Depot’s warning about softening consumer demand and growing expectations for rate cuts follows remarks made by Bank of America CEO Brian Moynihan, who said that the current consumer spending slowdown could worsen and even turn “very negative” if the Fed waits too long to cut.
Concerns about a slowdown in consumer spending aligns with a recent survey from the Federal Reserve Bank of New York which shows that household spending expectations have fallen to their lowest level since April 2021.

Moynihan said that Bank of America data show that consumer-spending growth in July and August was at around 3 percent, about half the pace around the same time last year.

Consumer spending is a key driver of the U.S. economy, accounting for roughly 70 percent of gross domestic product.

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