A cart filled with items at a Home Depot store on November 14, 2023 in Miami, Florida.
Joe Raedle | Getty Images
At the same time as Home Depot forecast sales declines, the retailer had excellent news for investors and consumers on Tuesday.
“I believe a very powerful commentary we have made is that the worst of the inflationary environment is behind us,” Chief Financial Officer Richard McPhail said on an earnings call.
Shares of the retailer rose by greater than 5% after the corporate beat quarterly earnings expectations, driving a rally for the Dow Jones Industrial Average. Home Depot’s comments also got here as government data on Tuesday morning showed that inflation was flat in October from the prior month.
Home Depot kicked off a much-anticipated week of retail earnings that features other household names, comparable to Walmart, Goal and Macy’s. The entire retailers have struggled with consumers who’ve grow to be more selective about spending, particularly on pricier and discretionary items, as they pay more for necessities like groceries.
Home Depot isn’t any exception. For multiple quarters, its customers have bought fewer big-ticket items and brought on smaller, inexpensive projects.
Yet with its comments Tuesday, Home Depot gave fresh hope that customers and the broader economy could soon see relief. Within the short term, cooling inflation reduces sales numbers for retailers, including Home Depot. Yet long run, if prices level off and even begin to drop, it may liberate more money that shoppers can spend elsewhere.
Plus, cooling inflation could speed along the tip of rate of interest hikes by the Federal Reserve. The central bank has been attempting to tame decades-high price increases without tipping the economy right into a recession.
Still, Michael Baker, a retail analyst at D.A. Davidson, said relief won’t come soon enough for the vacation season. He expects modest sales growth for retailers.
“Less inflation can invite back in some discretionary spending, but that is offset by the very fact it’s generally a fairly soft spending environment,” he said.
At Home Depot, McPhail has described 2023 as “a 12 months of moderation” after the boom in home improvement throughout the Covid pandemic. The retailer predicts a drop in sales from last 12 months.
Yet the normalization of other trends has brought predictability for the business and customers, he said.
“Some prices are settling at levels higher than 2022,” McPhail said. “Others are settling lower. But we’re seeing some stabilization there.”
Appliances, which sometimes requires monthslong wait times, are back in stock. Those healthier inventory levels have lifted sales within the category, said Billy Bastek, executive vice chairman of merchandising, on the earnings call.
Yet some aspects that drive inflation are beyond retailers’ control and influence consumers’ decisions, too.
Just take the price of painting a lounge, CEO Ted Decker said on the earnings call. He said Home Depot stays focused on offering low prices. But, he added, it’s backed off on the sorts of promotions that do not make a difference.
He said cutting the value of paint by $10 doesn’t put a dent in the larger cost: paying the painters.
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