Side view of a Home Depot box sitting on a shelf
Photo: Source | Home Depot

Home Depot yesterday reported that its first-quarter sales fell 4.2 percent with U.S. comps down 4.6 percent. The chain is expected to post its first annual sales decline since 2009.

Ted Decker, chairman, president and CEO of the nation’s largest home improvement retailer, said that “lumber deflation and unfavorable weather” largely contributed to performance that came in below the company’s expectations in a call with analysts. He pointed to “extreme weather events in California disproportionately” affecting results.

The silver lining in the gray cloud was that Home Depot’s results were better in places where weather was not a factor. Billy Bastek, executive vice president, merchandising for Home Depot, said that business was strong for products related to “smaller-ticket outdoor projects.”

Mr. Bastek said that consumers in the first quarter reduced spending on big-ticket items. This continued a trend that Home Depot first identified in the last three months of 2022. Big-ticket transactions of $1,000 or more were down 6.5 percent in the first quarter.

Four of the chain’s 14 merchandise categories – building materials, hardware, plumbing, and millwork – posted positive comps helping to drive the average ticket up 0.2 percent despite lumber deflation.

“During the first quarter, we saw a significant decline in lumber prices relative to a year ago,” said Mr. Bastek. “As an example, on average, framing lumber was approximately $420 per 1,000 board feet, compared to approximately $1,170 in the first quarter of 2022, which is a decrease of 64 percent.”

Home Depot is, in some respects, a victim of its past success having posted record results since the novel coronavirus pandemic began in 2020. Sales have grown 43 percent to $47 billion over the past three years.

The chain continues to believe in its plan and is especially excited about the investments it has made to recruit and retain the best workers to serve its customers.

“Our ability to attract qualified pools of candidates and hire from the top tier of these pools has improved even in our high volume — higher-volume stores. And in March, we saw the greatest year-over-year improvement in our attrition rates across all associate tenure cohorts that we have seen in some time,” said Anne-Marie Campbell, executive vice president, U.S. stores and international operations, Home Depot. “As a result, we are seeing improvements in key customer service metrics, as well as benefits to our operations in the form of consistent staffing and less safety incidents across all our regions.”

BrainTrust

“I think Home Depot deserves a giant break from the worried headlines they are getting. Deflation in lumber prices is a good thing, a very good thing.”

Jeff Sward

Founding Partner, Merchandising Metrics


“Remember that compared to the same period in 2019, Home Depot’s Q1 revenue is up by 41.2%. That is nothing but impressive and shows how far the company has advanced.”

Neil Saunders

Managing Director, GlobalData


“Home Depot needs to lean in on its promotional activity to keep customers engaged or they will lose them to their competitors.”

Susan O’Neal

General Manager, Promo Intel & Insights, Numerator

Discussion Questions

DISCUSSION QUESTIONS: Do you expect Home Depot to gain market share in the home improvement category even as it posts an annual sales decline? What areas of strength should Home Depot build on and what weaknesses does it need to shore up heading towards 2024?

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How likely is Home Depot to outperform its biggest home improvement competitors in 2023?

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25 responses to “What Will a Down Year Mean For Home Depot Beyond 2023?”

  1. Mark Ryski Avatar
    Mark Ryski

    Home Depot has defied the laws of retail gravity by delivering remarkable results for more than a decade, it’s only reasonable that it can’t last forever. Yes, these results are challenged relative to past performance, but I’m not convinced that this necessarily represents a structural change in go-forward results. Home Depot is guiding down, but that’s to be expected. If the debt ceiling issue can get resolved and inflation continues to moderate, barring unforeseen events, I would expect to see Home Depot’s to get back to delivering their ho-hum excellent results.

  2. Neil Saunders Avatar
    Neil Saunders

    Home Depot remains the destination of choice for Home Improvement and is a fantastic business. Yes, sales dipped by 4.2% this quarter but that is largely because of a consumer pullback and a deterioration in demand from the professional sector – both linked to wider economic issues which are outside of the company’s control. Remember that compared to the same period in 2019, Home Depot’s Q1 revenue is up by 41.2%. That is nothing but impressive and shows how far the company has advanced.

  3. Susan O'Neal Avatar
    Susan O’Neal

    History has shown that companies who lean in during difficult economic times with promotions to grab household penetration secure for themselves a long-term competitive advantage. Home Depot needs to lean in on its promotional activity to keep customers engaged or they will lose them to their competitors.

  4. Bob Phibbs Avatar
    Bob Phibbs

    I find it funny that the same pundits who the past two years had to add “gotcha” comments whenever a retailer posted significant increases “but with inflation, they aren’t really doing the job.” Now, sales are softening as lumber prices go down and they want to say how these retailers need to “step up.” We just came out of a once-in-a-lifetime boon to many retailers due to demand and inflation. Things are returning to normal as much as many will want to disagree. Less talk, let the retailers do their jobs.

  5. Ken Morris Avatar
    Ken Morris

    A down year after several big up years will always look worse than it is. When adjusted for “lumberflation” and regional weather, Home Depot’s performance looks like it’s built to last. I see this as a reset back to normalcy, if that is even possible. HD is still hot and will remain so, and the prices of other building materials keeps rising. A focus on the smaller projects mentioned above would be a wise decision to capitalize on this opportunity. Also, the stock patterns for Home Depot and its main competitor look like they’ve been trending almost identically, so a lot of this is the economy.

  6. Perry Kramer Avatar
    Perry Kramer

    Home Depot will continue to be a Home Improvement destination (both Physical locations and Digital). The organization has made all the right foundational investments in customer centric and supply chain technology and people. The nature of their business has always been susceptible to weather and supply chain vulnerabilities and is very hard to measure one quarter at a time. They will continue to gain market share from some of the small box retailers in this space.

  7. Peter Charness Avatar
    Peter Charness

    Home Building/Renovating follow economic cycles, so it’s not unreasonable to expect more than a few years of tough comp sales for Home Depot. Combine that with the one off “work from home/renovation covid influenced cycle” and you have more reasons why growth is not likely in 2023, or for a few years beyond. Good time to catch your breath get systems and processes fine tuned for better inventory management, in stock and improved unified commerce capabilities. Micro trends will emerge, particularly on a localized basis, Home Depot can optimize for those trends.

    1. Joe Skorupa Avatar
      Joe Skorupa

      Home Depot is a reliable indicator of the health of the larger economy and as the economy cools off sales at Home Depot are, unsurprisingly, cooling off as well. As a retailer that dominates the home improvement segment, Home Depot has the resources to strengthen its market share as others struggle, especially in a growth area emerging in response to weather issues caused by climate change.

  8. Michael Zakkour Avatar
    Michael Zakkour

    The decline has to be seen in the context of the 43% growth over the last three years. They have maintained the vast majority of that growth. They have also invested wisely in Unified Commerce and logistics. I am confident and bullish on HD’s future growth and destination of choice for home improvement.

  9. Ken Lonyai Avatar
    Ken Lonyai

    I just don’t buy the California thing. People with money are keepin’ on as if there’s no economic issues, but they aren’t Home Depot clientele. Everyone else is feeling the economy somehow and surely food, insurance, mortgage, car payments, etc., will always get attention before home improvement does. I can see big ticket items continuing to give way to repair categories like hardware and plumbing.

    I expect this isn’t the last declining quarter and may be the start of a long trend opposite to what they’ve experienced. And expect the same from competitors…

    Also, I’ve noticed that I can buy a $4.00 item online, delivered to my home for free. Maybe they’re trying to get more market share, but that can’t continue if sales are slipping.

  10. Jeff Sward Avatar
    Jeff Sward

    I think Home Depot deserves a giant break from the worried headlines they are getting. Deflation in lumber prices is a good thing, a very good thing. Did we start to worry about shipping companies when container rates came down from ludicrous levels? Home Depot has a solid business model that will naturally rise and fall with macro events like the pandemic, interest rates and inflation. It will all make for interesting commentary, but I don’t think any worried hand wringing is called for.

    1. Scott Norris Avatar
      Scott Norris

      Lots of people wanted to start home projects over the past few years but were dissuaded by outrageous lumber prices. If anything, deflation there will unlock pent-up demand in quarters to come. This is not a bad thing by any means – cheaper lumber helps offset higher interest rates for home construction as well.

  11. David Spear Avatar
    David Spear

    Despite the overall numbers, Home Depot is making the right investments and certainly can grab share, even in a down market. As a regular customer in their physical stores, you can see the results of their hard work and if they are hiring and keeping top talent, this is an added bonus.

    1. Gene Detroyer Avatar
      Gene Detroyer

      Home Depot down 4%. Lowes down 8%. HD gains share!

  12. Brandon Rael Avatar
    Brandon Rael

    Home Depot has built an excellent foundation and a resilient digital-first operating model that adapts to shift with the changing consumer behaviors and economic landscape. Their significant investments in digital infrastructure, store operations, supply chain, and logistic capabilities have enabled the company to ride out any economic headwinds, particularly as the home improvement and home-building market is susceptible to typical economic headwinds.

    The long-term outlook for Home Depot and the home improvement and building market is good, and a downturn is not unusual. It’s a long game, and Home Depot’s operating model will enable the company to make any adjustments to their inventory management, assortments, pricing, and service capabilities to keep things moving in the right direction. Home Depot’s continued investments in digital technology, customer-first solutions, associate enablement, and product will keep them well-positioned to ride out tough quarters.

  13. Melissa Minkow Avatar
    Melissa Minkow

    It’s impossible to have a perfect streak forever. This is a super small, and reasonable blip in the radar. I’m confident their numbers will bounce back quickly. The variables causing this aren’t long-term.

  14. Andrew Blatherwick Avatar
    Andrew Blatherwick

    Home Depot have performed so well over the last few years, they have ridden the boom in home improvements during and after the Covid Epidemic so it would be hard to expect them to continue to post large increases. There has been some incredible weather that they have to contend with and I expect when all results are reported they will come out stronger than other National players. The formula is still strong and many merchandise categories still showing strong sales so the machine is not broken just up against a very strong previous year and one area of the country that has proved tough.

  15. Doug Garnett Avatar
    Doug Garnett

    When consumer spending slows, homeowners cancel contractor projects and save money by doing smaller projects themselves. We’ve seen this shift in every economic slow time. Home Depot always sees pro sales decrease while Lowes begins to look stronger. When the slow time reverses, roles switch and Home Depot returns to strength.

    This is one time it’s difficult to be a public company where investors somehow believe companies should always be able avoid normal market forces. No falling piece of lumber avoids gravity – and no company can avoid normal ups and downs.

  16. Gene Detroyer Avatar
    Gene Detroyer

    Let’s see if I understand the problem. Home Depot grew 43% in the last three years but dropped 4% in the last quarter and we panic? The essential data point missing is how did the category do in Q1? Lowe’s was down 8%, so I think HD’s Q1 was wildly successful by comparison.

    My advice to HD…stay the course!

  17. Dave Wendland Avatar
    Dave Wendland

    The pandemic created incredible growth across the DIY categories at large, and for Home Depot, in particular. I could have certainly predicted a slowdown to follow and a “normalization” and leveling in their growth. The current economic climate combined with labor shortages is putting a strain on many channels — including construction, home remodeling, and building.

    The company’s current dip in sales is not anything to be overly concerned about. Home Depot has good momentum, a strong reputation, and is poised for continued growth following this minor setback.

  18. Jeff Hall Avatar
    Jeff Hall

    Notching record sales gains of 43% in the past three years is impressive – and not sustainable. Home Depot will continue to retain and gain market share just as soon as interest rates soften, the residential real estate market gains traction and homeowners once again find themselves and their pocketbooks in the mood for improvement projects.

  19. David Slavick Avatar
    David Slavick

    You are only as good as your last quarter or YoY performance. At some point factors which deliver strong margin (lumber with insane price escalation) and demand (due to “nesting” via pandemic will create change that no chain can overcome or continue to reap benefits from. In retail you can never use weather as an excuse except when the weather is caused by natural disasters. Likewise, rising prices have depressed demand – go look at the price of a teeny geranium at your local hardware, flower shop or big box retailer. We planted ferns instead for the first time in 14 years!

  20. Kenneth Leung Avatar
    Kenneth Leung

    Home Depot is highly correlated with housing, either new purchase or remodeling. It got a boost over COVID because everyone noticed their home needed improvement and with no alternative to spend a lot of people did home improvements. As higher interest rate guide down housing purchases, it is natural for Home Depot to adjust their guidance downwards.

  21. Karen Wong Avatar
    Karen Wong

    It would have been more surprising if they had comparatively stellar results given the supersized gains they made during the pandemic. The entire vertical is pulling back in the face of the current economic environment and the cost of financing today.

    They have made some key investments in their commerce systems so they should be well positioned for the next cycle. I can see some interesting possibilities with generative AI vs some of the AR tech I’ve seen in a lot of the home decor space. There is a lot of arcane knowledge that tools like ChatCGT are great at cutting through. It saved me a lot of time when I decided to put up some fancy wallpaper for the first time in my life recently 😉

  22. Christina Cooley Avatar
    Christina Cooley

    As interest rates influence some homeowners to stay put, instead of moving, Home Depot (among other home improvement retailers) is positioned to benefit. Within any given community, there can be a Home Depot, Lowe’s, Ace Hardware or other home improvement retailer to serve homeowners. If a customer goes into one of these retailers and doesn’t receive the service they need to find what they need, guidance on how to complete the project, and check out of the store quickly, that homeowner can easily decide to go to a different retailer. From the 2023 Home Improvement Retailer Satisfaction Study, just released on 5/19/23, J.D. Power reports that spending has increased over the last year compared to the prior two years. Home improvement spending remains strong! The areas that will most impact the customers experience and therefore loyalty to a specific retailer are staff and service; in-store experience; merchandise; online experience; and price.

25 Comments
oldest
newest
Mark Ryski
Mark Ryski
2 months ago

Home Depot has defied the laws of retail gravity by delivering remarkable results for more than a decade, it’s only reasonable that it can’t last forever. Yes, these results are challenged relative to past performance, but I’m not convinced that this necessarily represents a structural change in go-forward results. Home Depot is guiding down, but that’s to be expected. If the debt ceiling issue can get resolved and inflation continues to moderate, barring unforeseen events, I would expect to see Home Depot’s to get back to delivering their ho-hum excellent results.

Neil Saunders
Neil Saunders
2 months ago

Home Depot remains the destination of choice for Home Improvement and is a fantastic business. Yes, sales dipped by 4.2% this quarter but that is largely because of a consumer pullback and a deterioration in demand from the professional sector – both linked to wider economic issues which are outside of the company’s control. Remember that compared to the same period in 2019, Home Depot’s Q1 revenue is up by 41.2%. That is nothing but impressive and shows how far the company has advanced.

Susan O'Neal
Susan O’Neal
2 months ago

History has shown that companies who lean in during difficult economic times with promotions to grab household penetration secure for themselves a long-term competitive advantage. Home Depot needs to lean in on its promotional activity to keep customers engaged or they will lose them to their competitors.

Bob Phibbs
Bob Phibbs
2 months ago

I find it funny that the same pundits who the past two years had to add “gotcha” comments whenever a retailer posted significant increases “but with inflation, they aren’t really doing the job.” Now, sales are softening as lumber prices go down and they want to say how these retailers need to “step up.” We just came out of a once-in-a-lifetime boon to many retailers due to demand and inflation. Things are returning to normal as much as many will want to disagree. Less talk, let the retailers do their jobs.

Ken Morris
Ken Morris
2 months ago

A down year after several big up years will always look worse than it is. When adjusted for “lumberflation” and regional weather, Home Depot’s performance looks like it’s built to last. I see this as a reset back to normalcy, if that is even possible. HD is still hot and will remain so, and the prices of other building materials keeps rising. A focus on the smaller projects mentioned above would be a wise decision to capitalize on this opportunity. Also, the stock patterns for Home Depot and its main competitor look like they’ve been trending almost identically, so a lot of this is the economy.

Perry Kramer
Perry Kramer
2 months ago

Home Depot will continue to be a Home Improvement destination (both Physical locations and Digital). The organization has made all the right foundational investments in customer centric and supply chain technology and people. The nature of their business has always been susceptible to weather and supply chain vulnerabilities and is very hard to measure one quarter at a time. They will continue to gain market share from some of the small box retailers in this space.

Peter Charness
Peter Charness
2 months ago

Home Building/Renovating follow economic cycles, so it’s not unreasonable to expect more than a few years of tough comp sales for Home Depot. Combine that with the one off “work from home/renovation covid influenced cycle” and you have more reasons why growth is not likely in 2023, or for a few years beyond. Good time to catch your breath get systems and processes fine tuned for better inventory management, in stock and improved unified commerce capabilities. Micro trends will emerge, particularly on a localized basis, Home Depot can optimize for those trends.

Joe Skorupa
Joe Skorupa
  Peter Charness
2 months ago

Home Depot is a reliable indicator of the health of the larger economy and as the economy cools off sales at Home Depot are, unsurprisingly, cooling off as well. As a retailer that dominates the home improvement segment, Home Depot has the resources to strengthen its market share as others struggle, especially in a growth area emerging in response to weather issues caused by climate change.

Michael Zakkour
Michael Zakkour
2 months ago

The decline has to be seen in the context of the 43% growth over the last three years. They have maintained the vast majority of that growth. They have also invested wisely in Unified Commerce and logistics. I am confident and bullish on HD’s future growth and destination of choice for home improvement.

Ken Lonyai
Ken Lonyai
2 months ago

I just don’t buy the California thing. People with money are keepin’ on as if there’s no economic issues, but they aren’t Home Depot clientele. Everyone else is feeling the economy somehow and surely food, insurance, mortgage, car payments, etc., will always get attention before home improvement does. I can see big ticket items continuing to give way to repair categories like hardware and plumbing.

I expect this isn’t the last declining quarter and may be the start of a long trend opposite to what they’ve experienced. And expect the same from competitors…

Also, I’ve noticed that I can buy a $4.00 item online, delivered to my home for free. Maybe they’re trying to get more market share, but that can’t continue if sales are slipping.

Jeff Sward
Jeff Sward
2 months ago

I think Home Depot deserves a giant break from the worried headlines they are getting. Deflation in lumber prices is a good thing, a very good thing. Did we start to worry about shipping companies when container rates came down from ludicrous levels? Home Depot has a solid business model that will naturally rise and fall with macro events like the pandemic, interest rates and inflation. It will all make for interesting commentary, but I don’t think any worried hand wringing is called for.

Scott Norris
Scott Norris
  Jeff Sward
2 months ago

Lots of people wanted to start home projects over the past few years but were dissuaded by outrageous lumber prices. If anything, deflation there will unlock pent-up demand in quarters to come. This is not a bad thing by any means – cheaper lumber helps offset higher interest rates for home construction as well.

David Spear
David Spear
2 months ago

Despite the overall numbers, Home Depot is making the right investments and certainly can grab share, even in a down market. As a regular customer in their physical stores, you can see the results of their hard work and if they are hiring and keeping top talent, this is an added bonus.

Gene Detroyer
Gene Detroyer
  David Spear
2 months ago

Home Depot down 4%. Lowes down 8%. HD gains share!

Brandon Rael
Brandon Rael
2 months ago

Home Depot has built an excellent foundation and a resilient digital-first operating model that adapts to shift with the changing consumer behaviors and economic landscape. Their significant investments in digital infrastructure, store operations, supply chain, and logistic capabilities have enabled the company to ride out any economic headwinds, particularly as the home improvement and home-building market is susceptible to typical economic headwinds.

The long-term outlook for Home Depot and the home improvement and building market is good, and a downturn is not unusual. It’s a long game, and Home Depot’s operating model will enable the company to make any adjustments to their inventory management, assortments, pricing, and service capabilities to keep things moving in the right direction. Home Depot’s continued investments in digital technology, customer-first solutions, associate enablement, and product will keep them well-positioned to ride out tough quarters.

Melissa Minkow
Melissa Minkow
2 months ago

It’s impossible to have a perfect streak forever. This is a super small, and reasonable blip in the radar. I’m confident their numbers will bounce back quickly. The variables causing this aren’t long-term.

Andrew Blatherwick
Andrew Blatherwick
2 months ago

Home Depot have performed so well over the last few years, they have ridden the boom in home improvements during and after the Covid Epidemic so it would be hard to expect them to continue to post large increases. There has been some incredible weather that they have to contend with and I expect when all results are reported they will come out stronger than other National players. The formula is still strong and many merchandise categories still showing strong sales so the machine is not broken just up against a very strong previous year and one area of the country that has proved tough.

Doug Garnett
Doug Garnett
2 months ago

When consumer spending slows, homeowners cancel contractor projects and save money by doing smaller projects themselves. We’ve seen this shift in every economic slow time. Home Depot always sees pro sales decrease while Lowes begins to look stronger. When the slow time reverses, roles switch and Home Depot returns to strength.

This is one time it’s difficult to be a public company where investors somehow believe companies should always be able avoid normal market forces. No falling piece of lumber avoids gravity – and no company can avoid normal ups and downs.

Gene Detroyer
Gene Detroyer
2 months ago

Let’s see if I understand the problem. Home Depot grew 43% in the last three years but dropped 4% in the last quarter and we panic? The essential data point missing is how did the category do in Q1? Lowe’s was down 8%, so I think HD’s Q1 was wildly successful by comparison.

My advice to HD…stay the course!

Dave Wendland
Dave Wendland
2 months ago

The pandemic created incredible growth across the DIY categories at large, and for Home Depot, in particular. I could have certainly predicted a slowdown to follow and a “normalization” and leveling in their growth. The current economic climate combined with labor shortages is putting a strain on many channels — including construction, home remodeling, and building.

The company’s current dip in sales is not anything to be overly concerned about. Home Depot has good momentum, a strong reputation, and is poised for continued growth following this minor setback.

Jeff Hall
Jeff Hall
2 months ago

Notching record sales gains of 43% in the past three years is impressive – and not sustainable. Home Depot will continue to retain and gain market share just as soon as interest rates soften, the residential real estate market gains traction and homeowners once again find themselves and their pocketbooks in the mood for improvement projects.

David Slavick
David Slavick
2 months ago

You are only as good as your last quarter or YoY performance. At some point factors which deliver strong margin (lumber with insane price escalation) and demand (due to “nesting” via pandemic will create change that no chain can overcome or continue to reap benefits from. In retail you can never use weather as an excuse except when the weather is caused by natural disasters. Likewise, rising prices have depressed demand – go look at the price of a teeny geranium at your local hardware, flower shop or big box retailer. We planted ferns instead for the first time in 14 years!

Kenneth Leung
Kenneth Leung
2 months ago

Home Depot is highly correlated with housing, either new purchase or remodeling. It got a boost over COVID because everyone noticed their home needed improvement and with no alternative to spend a lot of people did home improvements. As higher interest rate guide down housing purchases, it is natural for Home Depot to adjust their guidance downwards.

Karen Wong
Karen Wong
2 months ago

It would have been more surprising if they had comparatively stellar results given the supersized gains they made during the pandemic. The entire vertical is pulling back in the face of the current economic environment and the cost of financing today.

They have made some key investments in their commerce systems so they should be well positioned for the next cycle. I can see some interesting possibilities with generative AI vs some of the AR tech I’ve seen in a lot of the home decor space. There is a lot of arcane knowledge that tools like ChatCGT are great at cutting through. It saved me a lot of time when I decided to put up some fancy wallpaper for the first time in my life recently 😉

Christina Cooley
Christina Cooley
2 months ago

As interest rates influence some homeowners to stay put, instead of moving, Home Depot (among other home improvement retailers) is positioned to benefit. Within any given community, there can be a Home Depot, Lowe’s, Ace Hardware or other home improvement retailer to serve homeowners. If a customer goes into one of these retailers and doesn’t receive the service they need to find what they need, guidance on how to complete the project, and check out of the store quickly, that homeowner can easily decide to go to a different retailer. From the 2023 Home Improvement Retailer Satisfaction Study, just released on 5/19/23, J.D. Power reports that spending has increased over the last year compared to the prior two years. Home improvement spending remains strong! The areas that will most impact the customers experience and therefore loyalty to a specific retailer are staff and service; in-store experience; merchandise; online experience; and price.