Home Depot (HD) is set to report earnings this week, giving investors an inside look into the state of consumer spending. HSBC US Consumer Staples Senior Analyst Daniela Bretthauer joins Catalysts to discuss what to expect from Home Depot’s earnings as home improvement spending fell more than 1% year over year, according to Harvard‘s Joint Center for Housing Studies.
“Consumers remain focused on value and price,” Bretthauer says. “They’re shifting their spending patterns to make ends meet.” She notes that Home Depot’s bigger-ticket items were in demand during the pandemic as homeowners took on more home improvement projects. However, as that demand declines, she expects the company’s quarterly sales to decrease by 2% to 3%.
Bretthauer adds that as wallets tighten amid higher inflation, more home remodelings and improvements are being put on the back burner. “The fact that rates remain high still and the interest rates cuts have been delayed, probably we’re only going to see one cut this year. So that doesn’t bode as well for people looking to buy new homes,” she explains.
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This post was written by Melanie Riehl
Video Transcript
All right.
Well, Home Depot set to report earning this week.
It’s going to give investors an inside look at the health of the consumer.
Now this report comes as higher rates have forced consumers to pull back on their spending.
There was a new report out showing that home improvement spend fell more than 1% in the first quarter from a year ago.
This is according you do out from Harvard.
So for more on this and what we could expect later this week, we wanna bring in Danielle Brett Howard, senior analyst of us consumer staples at HS BC Danielle.
It’s, it’s great to see you here.
So I think lots, there’s lots of questions from investors.
Just what exactly we’re going to hear from Home Depot, whether or not the worst is behind it here.
Home Depot and the rivals within the sector.
What do you think?
Hi, good morning, everyone.
And thanks for having me, apologies.
I have a little bit of a cold, too much traveling.
But uh yeah, so the ability to spend is supported by a growing job market and this remains quite healthy.
Uh Inflation has not decreased as quickly as the market was expecting mainly because of elevated services prices and inflation for goods, however, has dropped nearly to zero.
So consumers remain focused on value and price and they’re shifting their spending patterns uh to make ends meet.
So Home Depot sells uh higher ticket items.
Uh There was a lot of cool forward demand um during COVID.
And so they went through a gradual decline in some of these bigger ticket items which they say over $1000.
And so the year on year comes, uh, is not in their favor uh for this upcoming quarter.
So we’re looking at um, the sales to dec decrease between two and 3% and earnings between anywhere between two and five.
And this is again because of the higher big, uh, high big ticket purchases and then you have interest rates which remain high and for new home buyers, that’s an issue as well.
In addition to all the structural headwinds, um, that affects uh big ticket purchases decisions.
Yeah, Daniella, Daniella, talk to us a little bit more about the larger structural headwinds and then going off of that, just how long this will likely be an issue here for Home Depot and other larger players within the space.
Yeah.
So specifically for Home Depot and Lowe’s, which they operate in the same space and they’re very big on white goods, you know, appliances and um, uh, flooring and remodeling.
So what has happened is people have either postponed uh or um they’ve taken on this complex project, the remodeling, but uh a lot um less complex and uh with the tight budget, whereas during COVID, you had the additional savings and people wanted to do these upgrades in the remodeling.
So, uh like I said, there was a shift in demand and probably two years worth of demand has already been pulled forward.
So I would think uh 2023 was the first sort of down year and probably 2024.
And the fact that rates remain high still and the interest rates cut have been delayed.
Um Probably we were only going to see one cut this year.
So that doesn’t bode well as well for people looking to buy new homes and or a switch, the fundamentals, they remain solid, meaning a lot of older homes that need upgrades, um young population that, you know, the baby boomers that now have more spending power, but everything seems to be on hold for now.
