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Msg  415 of 421  at  5/16/2023 12:09:26 PM  by


Home Improvement Goes on Hiatus

 Home Improvement Goes on Hiatus -- Heard on the Street -- WSJ
By Jinjoo Lee
Dow Jones
The home improvement party is taking a pause.

Home Depot reported on Tuesday that comparable-store sales declined 4.5% from a year earlier in its quarter ended April 30, worse than the 1.7% decline Wall Street analysts polled by Visible Alpha expected. This marks the second consecutive quarter of year-over-year declines, notable for a company that has not seen such on-year decreases since the Great Recession of 2007-09.

The retailer said sales fell below expectations primarily because of lumber deflation and unfavorable weather -- including extreme weather events in California. Demand for big-ticket, discretionary items that were in high demand during the pandemic -- such as patio furniture, grills and appliances -- was weak. The company said consumers appear to be moving away from large projects to smaller ones, or breaking projects into chunks.

Still, comparable-store sales rose for necessity-driven categories such as building materials, hardware, plumbing and millwork. The one bright spot was Home Depot's ability to control what it can: Despite softening demand, the company has been able to keep operating margins near 15%.

Indicators for home-improvement spending look mixed. On the one hand, rising mortgage rates are discouraging households from selling or buying homes. Home values, which Home Depot said have the tightest correlation to home improvement spending, have shown early signs of weakening. The median price of homes sold declined 9% in the first three months of this year compared with the final quarter of 2022, according to the Census Bureau.

On the other hand, there is a chronic shortage of new housing stock, which means homes continue to age. Notably, 62% of homes were 32 years or older in 2021, up from 55% a decade earlier, according to the U.S. Census Bureau. Families may stay put in their homes, but their needs keep changing with new children or aging relatives, which creates a need for home improvement.

Home Depot is seeing enough of a demand slowdown that it now expects sales to decline between 2% and 5% this fiscal year, markedly worse than the flat guidance the company gave three months ago. Home Depot sees this year as a "transitional period" and says it is bullish on the medium to long-term outlook, pointing out that homeowners -- their primary customer base -- have seen home values skyrocket since 2019.

The question for investors is how long this transition might last, and whether even small declines in home values might erode consumer demand in the coming quarters. The foundations for strong home improvement demand are still there but small cracks, some of which were on display last quarter, could still undermine it. 

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