Home Depot beats revenue expectations, but the home-improvement boom is tapering off
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Shoshana Gordon/Axios
America's home-improvement boom is over, but people aren't exactly abandoning projects around the house.
Why it matters: The stay-at-home nature of the pandemic and the excess savings that came along with it fueled a huge increase in home-improvement spending, bolstering retailers like Home Depot and Lowe's.
- But that explosion of activity has subsided in recent quarters as consumers shifted spending toward services like travel and entertainment. (Like, for example, "listening seats" — see item No. 5.)
Driving the news: Home Depot reported Tuesday that its revenue fell 2% in the second quarter to $42.9 billion, compared with the same period a year earlier.
- But that was about $700 million more than S&P Capital IQ analysts were expecting — and Home Depot's stock was up slightly Tuesday afternoon.
- The average Home Depot customer spent $90.07 in a single trip in the last quarter — which was about flat from a year earlier — but there were 1.8% fewer transactions overall.
State of play: Major renovation projects appear to be giving way to smaller projects around the house.
- The number of transactions of more than $1,000 fell by 5.5%.
- "After three years of unprecedented demand in home improvement market, we continue to see softer engagement in big-ticket discretionary categories like patio and appliances that likely reflects both pull-forward of these single-item purchases and deferrals," Home Depot executive VP of merchandising William Bastek said on an earnings call.
- "There is a trend towards smaller projects and less grandiose plans," Shoggi Ezeizat, an analyst at research firm Third Bridge, wrote Tuesday.
Threat level: Elevated mortgage rates threaten to continue to exert a dampening effect on housing industry spending.
- Sentiment among homebuilders, one of the most important customers for Home Depot, fell in August for the first time in seven months, according to the National Association of Home Builders/Wells Fargo Housing Market Index released today.
- Spending at furniture and home furnishing stores fell by 1.8% from June to July, the Census Bureau reported Tuesday.
The bottom line: "Items with higher price tags, such as landscape gardening, appliances, barbecues, and patio furniture, face the most significant risk of a decline in sales," Ezeizat said.
- But, "on the plus side, our experts believe that consumer pricing sensitivity is still less of a concern. There is also some optimism in the DIY segment as inflation begins to ease."
