Home Depot sales drop reflects slowdown in housing market
By Olivia Rockeman | Bloomberg
Home Depot Inc. reported a fifth straight comparable sales decline, underscoring a drop in demand for house improvement due to high mortgage rates and a slowdown in construction.
While mortgage rates have come down from October’s 23-year high, they continue to impact home sales and construction. In January, new-home construction sank by the most since the onset of the pandemic, indicating that any pickup in housing demand will be delayed until borrowing costs come down further.
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Comparable sales fell 3.5% in the fiscal fourth quarter, Home Depot said Tuesday. That was slightly better than the 3.6% decline analysts had forecast before the report. The sales decline in the quarter is in line with a report last week from the Commerce Department, which showed a pronounced drop in retail sales at building materials stores.
“Some of this is down to a continued reset as consumers turn away from spending on the home, but much is now being driven by an unfavorable economic backdrop,” Neil Saunders, an analyst at GlobalData Plc, said in a note. “Fortunately, there is some evidence that the housing market will pick up slightly in 2024.”
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This year, the retailer expects comparable sales to decline about 1%, an improvement from last year but below what analysts had estimated. While consumers are still spending on smaller home projects, they are deferring big-ticket purchases, Home Depot executive vice president of merchandising Billy Bastek said on a call with analysts.
“We still expect pressures to our business in 2024,” Chief Financial Officer Richard McPhail said on the call. “We’re planning for a year of continued moderation.”
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Despite current signs of weakness, analysts remain confident in the long-term success of Home Depot. In January, analysts at Wedbush Securities upgraded their rating of the retailer from neutral to outperform, pointing to “a rebounding industry environment with healthy Pro and general employment, solid wage growth and homeowner spending power from continued home-price appreciation.”
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Walmart Inc., which also released results on Tuesday, reported positive same-store sales growth in the fourth quarter though said it expects full-year growth to be softer than last year due to uncertainties around consumer demand for discretionary purchases.