Home Depot Lowers Sales Forecast as Economy Slows Down

Home Depot, the biggest home improvement store in the U.S., has announced that it expects its sales to drop more than previously thought due to rising interest rates and cautious consumer spending.

The company now predicts its sales to decrease by 3% to 4% this year, compared to an earlier estimate of just a 1% drop. This comes after Home Depot reported its seventh straight quarter of declining sales, with a 3.3% drop in sales during the second quarter.

In the second quarter of 2024, Home Depot’s revenue increased slightly to $43.18 billion, up from $42.92 billion in the same period last year. However, this increase was mainly due to the company’s recent $18.3 billion purchase of SRS Distribution, a company that supplies materials to professional contractors.

Without this acquisition, Home Depot’s overall sales would have shown the impact of the tough economic situation consumers are facing.

The company’s net income for the quarter was $4.6 billion, or $4.60 per share, which was a little lower than the $4.66 billion, or $4.65 per share, it made in the same quarter last year.

Home Depot’s struggles are mostly due to the Federal Reserve’s decision to raise interest rates over the past two years, making it more expensive for people to borrow money. This has led to consumers spending less, especially on large home renovation projects that often require financing.

Home Depot’s Chief Financial Officer, Richard McPhail, explained that many customers are delaying big projects, hoping that interest rates will drop soon.

“Customers are telling us they’re waiting for interest rates to go down before they start major projects like kitchen or bathroom remodels,” McPhail said. “This delay is affecting our sales, especially for expensive items.”

Interest rates have been a big worry for consumers since the Federal Reserve raised its benchmark rate from nearly zero to over 5% to fight inflation.

This has slowed down home sales and reduced the demand for home improvement products. In June 2024, the median price of a previously owned home in the U.S. increased to $426,900, which is 4.1% higher than last year, putting more pressure on family budgets.

Even though Home Depot is facing short-term challenges, the company is making important investments to stay strong in the long run. The purchase of SRS Distribution is a big part of this plan, as it helps Home Depot grow its business with professional contractors-a group that has stayed steady even in tough economic times.

These contractors usually spend more on building materials than regular customers who do home projects themselves, and they now make up about half of Home Depot’s sales.

Home Depot’s lowered sales forecast caught the attention of the stock market. The company’s stock fell by 4.6% in early trading after the announcement, and its competitor, Lowe’s, also saw its shares drop by 2.6%. As Home Depot deals with these economic challenges, the company is focusing on its long-term plans, including improving its supply chain and digital operations, to stay strong in the home improvement business.

In the next few weeks, other major retailers like Walmart and Target will report their earnings, and many will be watching to see how consumers are feeling and how the economy is doing.