Home improvement retail giant Home Depot (HD) has been feeling the brunt of a lingering consumer trend that has negatively impacted business over the past year.
Even though Home Depot revealed in its latest earnings report that its U.S. comparable sales increased by 1.4% year-over-year during the second quarter of this year, recent data from Placer.ai flagged that the retailer’s foot traffic in same-store locations decreased by 2.6%, compared to the same quarter last year.
Related: Home Depot raises red flag about customer behavior in stores
During an earnings call on Aug. 19, Home Depot Executive Vice President of Merchandising Billy Bastick said that customers are continuing to avoid making purchases for large home improvement projects.
“We continue to see softer engagement in larger discretionary projects where customers typically use financing to fund the renovation project,” said Bastick.
Home Depot Chief Financial Officer Richard McPhail flagged during the call that challenges in the U.S. housing market, such as high interest rates, are causing customers to delay financing these projects.
“Our customers still tell us that the rate environment is giving them pause on larger remodeling projects that would typically require debt financing,” said McPhail.
Since 2022, the average 30-year mortgage rate has remained above 6%, and consumers are buying new homes at a slow pace as prices rise. In July, existing-home sales increased by 2% month-over-month, while total unsold housing inventory spiked by 0.6%, according to a recent report from the National Association of Realtors.
The report also found that the median existing-home sales price climbed by 0.2% year-over-year, reaching $422,400.
“The new school year usually closes the door on the housing market’s peak buying season, and this summer fell short of expectations,” said Ruben Gonzalez, chief economist at Keller Williams, in a statement to TheStreet. “Mortgage rates surged at an inopportune moment this spring, putting many potential buyers on the fence as we headed into the summer.”
Home Depot makes bold addition to its offerings for customers
As consumers continue to avoid funding large home improvement projects. Home Depot has just closed on a $5.5 billion deal that could help it reverse that trend.
As consumers continue to avoid funding large home improvement projects. Home Depot has just closed on a $5.5 billion deal that could help it reverse that trend.
Home Depot has just closed its acquisition of GMS, a major distributor of building products such as drywall, ceilings, steel framing and other complementary products.
Image source: Getty Images
The deal was previously announced in June, and it will grant residential and commercial professional contractors (Pro) access to more fulfillment and service options that will allow them to “more quickly and seamlessly complete their projects,” according to a recent Home Depot press release.
The move from Home Depot comes after it acquired building material supplier SRS Distribution, which specializes in landscaping, roofing and pool construction products, for $18.25 billion last year. GMS is now a subsidiary of SRS and an indirect subsidiary of Home Depot.
Related: Lowe’s struggles to fix a concerning customer problem
“The addition of GMS further enhances SRS’s position as a leading multi-category building materials distributor, bringing differentiated capabilities, product categories and customer relationships that are highly complementary to SRS’s business today,” said Home Depot CEO Ted Decker in the press release. “We want to serve the Pro across their entire project, and the combination of SRS and GMS will enable cross-selling synergies, strengthen our capabilities, and bring even more opportunities to grow with this important customer.”
Home Depot navigates consumer demand amid economic uncertainty
Home Depot’s increased efforts to attract Pro customers come as it notices that home improvement project demand remains steady despite recent economic headwinds.
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“I think it’s important to note is (that) our Pros we survey every quarter and say that their customers tell them they’re deferring projects,” said McPhail during the earnings call last month. “They’re not canceling projects. Home improvement demand persists and so our job is to position ourselves to be ready for that.”
As Home Depot expands its products and services for customers, it plans to raise prices in its stores due to the growing threat of President Donald Trump’s tariffs, a move that could negatively impact demand.
“It’s super important to remember that over 50% of our products are sourced domestically and wouldn’t be subject to any tariffs,” said Bastick during the earnings call. “Now, some of the important goods, obviously, tariff rates are significantly higher today than they were when we spoke in May. So as you’d expect, there’ll be some modest price movement in some categories, but it won’t be broad-based.”
Related: Walmart makes drastic move to keep customers from fleeing stores
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