Sticking to the same DIY rhythm as the previous quarter, Home Depot continues to see consumers hammering away at small projects instead of diving into grand remodels that can drill a hole in their wallets.
“We saw the continuation of the trend that we have been observing throughout the year with softness in certain big-ticket, discretionary-type purchases. Instead of engaging in larger projects, customers continued to take on smaller projects,” Home Depot EVP of Merchandising William Bastek said during the company’s latest quarterly earnings call on Tuesday (Nov. 14).
In tune with this pattern, the building materials department boasted a positive performance, while seven out of the remaining 13 merchandising departments reported costs above the company average, spanning plumbing, appliances, hardware, outdoor garden, network tools and paint.
Lumber prices showed a decrease compared to the previous year, with framing lumber averaging around $420 per 1,000 board feet, marking a notable drop of over 20% from $545 in the third quarter of 2022.
Transactions involving big-ticket items exceeding $1,000 saw a 5.2% decrease compared to the third quarter of the previous year, indicating subdued interest in significant discretionary categories like flooring, countertops and cabinets. However, there was a noticeable uptick in substantial transactions in professional-heavy categories such as roofing, insulation and portable power.
Home Depot also highlighted a 5% increase in total online sales for the entire company through digital platforms compared to the third quarter of the previous year, and said almost half of its online orders during the third quarter were fulfilled in-store.
In the previous quarter, PYMNTS reported that rising interest rates meant increased borrowing costs. This translated to decreased purchasing power for potential homebuyers, effectively putting the brakes on their homeownership aspirations.
With that, a growing cohort of cautious consumers soon adopted a “wait and see” approach to the real estate market and demand for new homes dipped while the demand for renovation projects grew.
However, homeowners who had been considering home improvements were now confronted with a dilemma. Elevated interest payments for extensive renovations had the potential to dissuade even the most enthusiastic DIY enthusiasts.
At the same time, inflation brought forth its own array of challenges. The escalation in prices for materials and labor introduced a level of uncertainty into budget considerations for homeowners seeking to embark on significant renovation projects.
“However, adversity breeds innovation,” PYMNTS said in a report.
The combination of rising interest rates and inflation ushered in a new era of home improvement: small updates and projects. Homeowners opted for projects that were budget-friendly and manageable, such as repainting a room or upgrading fixtures.
“Our quarterly performance was in line with our expectations,” Home Depot Chair, President and CEO Ted Decker said in a statement. “Similar to the second quarter, we saw continued customer engagement with smaller projects, and experienced pressure in certain big-ticket, discretionary categories.”
Citing “strategic initiatives,” Decker said the company will invest in interconnected shopping experiences, grow its store footprint and capture wallet share with its Pro business for the building trade.
In the third quarter of fiscal 2023, Home Depot reported a sales figure of $37.7 billion, reflecting a 3.0% decrease compared to the corresponding period in fiscal 2022.
During the same quarter, comparable sales saw a 3.1% decline, with U.S. comparable sales dropping by 3.5%. Net earnings for the third quarter of fiscal 2023 amounted to $3.8 billion, translating to $3.81 per diluted share. This contrasts with the net earnings of $4.3 billion, or $4.24 per diluted share, recorded in the third quarter of fiscal 2022.