Home Depot beat first-quarter results on the back of steady demand with shoppers spending more per trip.Charles Krupa/The Associated Press
Home Depot HD-N said on Tuesday Americans were scaling back large remodeling projects as they grapple with mounting macroeconomic uncertainty and a subdued housing market strained by affordability pressures.
U.S. consumer sentiment slumped to a record low in early May as the war in Iran fanned inflation pressures and strained household finances, a backdrop that has kept spending on home improvement projects muted amid elevated mortgage rates and high home prices.
“Our customer seems to be in reasonably good shape ... while maybe not the large project. The main thing is just this uncertainty that’s holding them back for taking on large projects,” CEO Ted Decker said on a post-earnings call.
Shares of the company were last up marginally. It retails products that can cost between US$5 and more than US$5,000, with a roughly US$90 average basket size.
Home Depot executives said elevated fuel costs are pressuring the business through both transportation and input expenses, but noted tariff refunds could provide a significant offset.
The company said it had already received some amount of refunds, without disclosing any actual figures.
Home Depot kicks off a big earnings week for U.S. retailers that could shed more light on the state of the consumer. Rival Lowe’s and big-box retailer Target are set to report on Wednesday and sector bellwether Walmart on Thursday.
Home Depot continues to expect annual comparable sales to be in the range of flat to a rise of 2.0 per cent and adjusted profit growth of flat to a 4.0 per cent rise.
“We continue to believe Home Depot is taking share and executing well in a difficult environment, and the company stands to benefit as housing demand recovers, although the recovery still appears some time away,” said Joseph Feldman, analyst with Telsey Advisory Group.
Home Depot posted quarterly sales of US$41.77 billion for the first quarter, compared with analysts’ estimates of US$41.52 billion, according to data compiled by LSEG.
The company has been investing heavily in its Pro business to pull in contractors and builders to help it weather weak demand for bigger projects from individual households.
Comparable average ticket, or spending per visit, rose 2.2 per cent in the three months ended May 3, while comparable customer transactions dipped 1.3 per cent from a year earlier.
The company posted an adjusted profit of US$3.43 per share for the first quarter, beating estimates of US$3.41.