Just like many major retailers across the country, especially in the home goods industry, Home Depot (HD) is suffering from a sharp change in consumer behavior.
An increasing number of consumers continue to watch their spending carefully, and Home Depot just shed some light on why.
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Home Depot’s third-quarter earnings report for 2024 revealed comparable sales in the U.S. decreased by 1.2% year-over-year during the quarter. Comparable sales reflect year-over-year changes at stores open for at least one year.
Also, the average amount of money customers spent on each purchase shrunk by almost 1%.
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Customers have also been avoiding or at least postponing large discretionary projects such as kitchen and bath remodels, which is also hurting Home Depot’s pockets.
This consumer trend contributed to the company’s roughly 4% decline in net earnings during the quarter compared to the same time period last year.
Home Depot customers reveal major concerns
During a recent earnings call, Home Depot Chief Financial Officer Richard McPhail revealed the company has been surveying its customers over the past few months to find out why they remain cautious about making discretionary purchases. He claimed the responses aren’t just about higher prices because of inflation.
Home Depot has noticed a decline in sales this year.
“The number one issue that people were citing in our surveys were general macroeconomic and even political uncertainty,” said McPhail.
Currently, the average 30-year mortgage rate remains high — above 6% — and it has been that way for the past two years, despite the Federal Reserve’s recent interest rate cuts. The housing turnover rate in the U.S. is hovering at 2.5%, which is the lowest it’s been in 30 years, and home prices remain high.
Over the past few months, consumers have also been facing the stress of the buildup toward the 2024 presidential election, which finally took place last week. Former President Donald Trump won the election, snagging more electoral and popular votes than his Democratic opponent, Vice President Kamala Harris.
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McPhail stated during the call that in order for consumers to return to making purchases for large home improvement projects, they have to feel secure with the current macroeconomic and political environment.
“For someone to make that decision to pull the trigger on [a] $25,000, $50,000, $75,000 project, there’s a certain amount of confidence that goes into that,” said McPhail. “And, one would hope that we’re headed toward a change in overall confidence levels.”
Home Depot sales were impacted by hurricanes
Despite recent setbacks in its business, Home Depot did see a slight boost in sales during the third quarter, partly due to consumers purchasing goods to prepare for hurricanes Helene and Milton.
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Hurricane Helene made landfall in late September, devastating states such as Florida, Georgia and the Carolinas. In October, Hurricane Milton made a direct hit to Florida, wreaking havoc in several counties.
“Our results for the third quarter include a net contribution of approximately $200 million in hurricane related sales,” said McPhail.
Home Depot shares mixed outlook on future sales
Following the company’s lackluster third-quarter performance, it updated its sales expectations for fiscal year 2024.
While Home Depot expects its total sales for the rest of the fiscal year to increase by 4%, it now expects its comparable sales to decline by about 2.5%.
“Despite the continued uncertainty in the macroeconomic environment, our focus remains on creating the best interconnected experience, growing Pro wallet share through a differentiated set of capabilities in building new stores,” said Home Depot CEO Ted Decker during the earnings call.
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