USA update

Home Depot has reported revenues of USD37.3 billion for its first quarter, down 4.2% from the same three months a year ago. Its comparable-store sales also declined 4.5% from a year earlier during the quarter ended April 30.

Billy Bastek, executive vice president, merchandising, said business during the period was strong for products related to "smaller-ticket outdoor projects." Homeowners are opting for smaller projects and shifting away from large renovations.

Mr. Bastek said consumers reduced spending on large, discretionary items such as outdoor furniture, BBQs and appliances, as well as kitchens and flooring. Big-ticket transactions of USD1,000 or more were down 6.5% in the first quarter.

Four of the retailer's 14 merchandise categories - building materials, hardware, plumbing, and millwork - posted positive comparable sales which helped to drive the average ticket up 0.2 percent despite timber deflation. Mr. Bastek said:

During the first quarter, we saw a significant decline in lumber prices relative to a year ago. As an example, on average, framing lumber was approximately USD420 per 1,000 board feet, compared to approximately USD1,170 in the first quarter of 2022, which is a decrease of 64%.

Net earnings were USD3.9 billion, down about 7%, from the same period last year. Ted Decker, company chief executive, said during a conference call with industry analysts and reporters:

We expected that fiscal 2023 would be a year of moderation for the home improvement market. We also observed more broad-based pressure across the business, compared to a few months ago.

Home Depot will finish the year with sales between 2% and 5% lower than last year, and expects earnings to fall between 7% and 13% this year on lower margins.

This result comes after three years of sometimes spectacular growth. Since the novel coronavirus pandemic began in 2020, sales have grown 43% to USD47 billion.

But in the past three months, it has been plagued by bad weather including extreme weather events in California, erratic timber prices and suddenly cautious consumers.

In 2023, consumer spending on home improvement projects has slowed down, and reduced the scale of some remodelling projects. They have become less confident in their economic prospects and pulled back spending as they navigate continued high inflation and elevated interest rates. Many homeowners have completed most of the projects they wanted to accomplish during the pandemic.

Overall, Home Depot's core shoppers, often homeowners, are in good financial health, said Richard McPhail, Home Depot's chief financial officer said, but "there has been this shift in the consumer psyche."

Professionals such as contractors and electricians, who have historically driven about half of its revenue, are still reporting healthy backlogs, Mr. McPhail said in the Wall Street Journal.

The retailer's expectation for "2023 to be a year of moderation in the home improvement market" might apply to industry peers as well.

Pay increases for workers

Home Depot sees this year as a "transitional period" but remains bullish on the medium-to-long-term outlook. It is especially excited about the investments it has made to recruit and retain the best workers to serve its customers. Earlier this year, it announced the decision to invest USD1 billion in employee wages even as sales are slowing in a weakening consumer economy.

Giving pay raises at the same time sales are slumping seems like an incongruous strategy, but Home Depot executives believe it will actually boost the big-box retailer's industry-leading position. At the time of the announcement, Mr Decker said the investment "positions us more favourably in every market where we operate." He said higher wages will improve the customer experience as the company attracts more high-quality workers and keep experienced staff.

This investment will help us attract and retain the best talent into our pipeline.

Home Depot also added more training opportunities, including the promotion of more than 65,000 employees in 2022 alone. Ann-Marie Campbell, executive vice president of US stores and international operations at Home Depot, said:

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 (this year), we saw the greatest year-over-year improvement in our attrition rates across all associate tenure cohorts that we have seen in some time. 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.

Sources: RetailWire, CNBC, The Atlanta Journal-Constitution and Wall Street Journal