Customers have spent the past two years waiting for prices to come down, following 2021’s supply-chain traffic-jams and Russia’s invasion of Ukraine last year. On Tuesday, they got a bit more proof that a break was up ahead — from Home Depot Inc.
“I think the most important observation we’ve made is that the worst of the inflationary environment is behind us, and as a result…retail prices are settling in the market,” Chief Financial Officer Richard McPhail said on Home Depot’s
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earnings call on Tuesday to discuss third-quarter results, which beat Wall Street’s estimates despite signs of caution for the months to come.
“Some prices are settling at levels higher than 2022,” he continued. “Others are settling lower.”
Billy Bastek, the home-improvement retailer’s executive vice president of merchandising, said there had been “a stabilization that we’ve seen across the board as it relates to pricing.”
Executives made the remarks ahead of results this week from other large retailers like Target Corp.
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and Walmart Inc.
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and amid growing pessimism from analysts about demand trends. The remarks also followed fluctuations in the housing market — from the pandemic’s home-renovation boom to the rise in home prices and mortgage rates that stalled out the industry — and resulting fluctuations in lumber prices and demand for some big-ticket purchases.
Home Depot executives said Tuesday that customers had shied away from some of those items — like flooring, countertops and cabinets. However, they said they saw better results in roofing, insulation and portable power options, which are geared more toward Home Depot’s Pro business, the segment that targets professional renovators and contractors.
Shares jumped 6.3% after the results. The stock is still down 3% year-to-date.
Executives during the call expressed optimism over holiday-season demand, helped by things like power drills and batteries. However, the company said that this year was a “period of moderation” for home-improvement spending, as the Fed takes a “higher-for-longer” stance on interest rates.
Following the results, analysts largely concurred.
“We agree with [Home Depot] that the higher-for-longer Fed posture will keep pressuring home improvement projects,” CFRA analyst Ana Garcia said in a note. “We think this may limit big ticket growth by targeting the Pro addressable market, a lever HD plans to use to spur big ticket growth in ’24.”
Edward Jones analyst Brian Yarbrough said Tuesday that ,despite doing a decent amount of business with people undertaking smaller projects, traffic declines and weaker trends in big-ticket sales weighed on results. And he said he expected spending elsewhere — like travel and entertainment — would weigh on home-improvement demand for the rest of this year and into early next year.
But he suggested that less pricing power, while good for customers, would weigh on results.
“We expect that lower traffic into the stores and less price inflation will continue to negatively impact results in the near term,” he said.
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