Pressures from a subdued housing market and dampened spending are impacting the home improvement industry.
The Home Depot, the world’s largest home improvement retailer, on Tuesday (Nov. 14) reported its third quarter 2023 earnings, showing 2.4% fewer transactions during the quarter.
The Atlanta-based company also reported that the average size of those tickets had edged lower as well, with its customers — both individual and professional — pulling back on high-dollar purchases and deferring major home-improvement projects.
Home Depot Pro, which is the firm’s wholesale operation dealing exclusively with the trade (e.g., contractors), outpaced the consumer (DIY) segment, according to executives on the call, who also noted that the margin of outperformance in the third quarter was “the narrowest we’ve seen.”
“We are going to continue to grow the complex pro, the connectivity into the store is an important part — our pros shop at our stores every day and connecting them to our flatbed delivery systems is a part of that,” Home Depot leadership said during the call’s Q&A portion.
“The number one way we’re focused on driving demand is with the complex pro, it’s a $200 billion space. That is our strategy,” said Ted Decker, chair, president and CEO of Home Depot. “Larger pros with more complex spend, we are building out the capabilities to service that demand. It is increasingly where we are very focused.”
“We think for years and years that will be a driver of our business as we continue to take share in that $200 billion white space,” he added.
Home Depot reported sales of $37.7 billion for the third quarter of fiscal 2023, a decrease of 3.0% from the third quarter of fiscal 2022. Comparable sales for the third quarter of fiscal 2023 decreased 3.1%, and comparable sales in the U.S. decreased 3.5%.
Big-ticket sales of more than $1,000 were down 5.2% from a year earlier, led by declines in flooring, countertops and cabinets the company reported.
“The larger projects are a bit down at the moment, and that’s what we’re watching,” executives said on the call.
The Home Depot also narrowed its fiscal 2023 guidance range, reporting that it now expects earnings to fall 9% to 11% this year, compared with previous guidance for a 7% to 13% decline. Sales are also now expected to fall 3% to 4% for 2023, compared with a prior range for a 2% to 5% decline.
“Our quarterly performance was in line with our expectations,” Decker said. “Similar to the second quarter, we saw continued customer engagement with smaller projects, and experienced pressure in certain big-ticket, discretionary categories.”
The company is “committed to investing in the business to deliver the best interconnected shopping experience, capture wallet share with the Pro,” Decker added.
Executives told investors that they weren’t interested in “chasing price” in the pro dynamic, noting that the labor to goods cost ratio is made up mostly of labor costs.
“A $500 living room paint job is mostly labor, for example — we aren’t going to chase price in that dynamic by looking to cut something like the price of paint by $10 for example,” Decker told investors during the Q&A session.
“We are always looking at a balance between ticket and transactions,” he added, noting that “the home improvement market is worth much more than before the pandemic.”
Still, the housing market itself is becoming increasingly unaffordable, with mortgage rates pushing to the tips of 23-year highs, and the cost of capital shooting up alongside with them. This means that people aren’t buying new homes, or making many ground-up renovations to their existing residences.
As remodeling projects and bigger purchases soften, that has translated to fewer sales for retailers like Home Depot, and less action for its pro audience.
Still, Home Depot underscored to investors on Tuesday’s call that they are continually reinvesting into digital innovations to streamline associate and employee workflows.
“We are using ML [machine learning] technology and computer vision to help quickly find inventory … These tools have been deployed across all US.. stores and are driving productivity by making it easier for associates to do their jobs and focus on the most important tasks, allocating their time in the most productive ways,” executives said.