Home Depot flags profit hit from slowing demand, rising wages in 2023

By Deborah Mary Sophia

(Reuters) -Home Depot Inc warned of slowing demand for home improvement goods this year as inflation dents the ability of customers to spend on remodeling projects, sending its shares down as much as 6% in morning trading on Tuesday.

The No. 1 US home improvement chain forecast annual profit below Street expectations as it increases spending on wages by $1 billion to tackle labor shortages while struggling with higher costs.

Demand for home improvement tools is dropping from pandemic-highs as homeowners become increasingly sensitive to higher prices.

Home Depot said demand for its products such as soft flooring and roofing was slowing down, even as builders and contractors continued to purchase its big-ticket items such as pipes and fittings.

“We expect this to be a year of moderation in demand for home improvement,” Chief Executive Ted Decker said on a post-earnings call.

“While we don’t love moderation, you can’t fight the tide (with consumer spending) going back to services, people traveling and what not.”

Home Depot is also seeing elevated input costs, while a tight US labor market has prompted it to invest $1 billion more in wages for its frontline hourly associates.

The company expects 2023 per-share profit to decline in the mid-single digits percentage range, while analysts expected a 0.4% increase to $16.72, according to Refinitiv data.

“Home improvement is going to suffer. The consumer just doesn’t want to write big checks and borrow money to spend on things that they don’t need right now,” Neuberger Berman portfolio manager John San Marco said.

Rising wages and a weak consumer sentiment also led retail bellwether Walmart Inc to take an cautious stance for 2023 as it forecast annual profit estimates below on Tuesday.

Home Depot also reported a surprise drop in fourth-quarter comparable sales as customer transactions fell.

“The macro environment seems to have caught up with Home Depot,” said DA Davidson analyst Michael Baker.

(Reporting by Deborah Sophia in Bengaluru; Editing by Arun Koyyur)