Home Depot released earnings today for the quarter ended in June, and it was more of the same of what we’ve been hearing from manufacturers. Despite it being the quarter that was in the heart of grilling season, there wasn’t much grill talk on their earnings call. It was more focused around the health of the consumer.
The team continues to navigate this unique environment, while executing at a high level. During the quarter, higher interest rates and greater macroeconomic uncertainty pressured consumer demand more broadly resulting in weaker spend across home improvement projects. Additionally, we saw continued softness in Spring projects, which were also impacted by the extreme weather changes throughout the quarter.
Ted Decker, President & CEO at The Home Depot
With macroeconomic uncertainty, comes weaker discretionary spending. That’s a category that grills largely fit into. It’s not surprising that Home Depot continues to see softness with big-ticket discretionary purchases.
Big-ticket comp transactions, or those over $1,000 dollars, were down 5.8 percent compared to the second quarter of last year. We continued to see softer engagement in larger discretionary projects where customers typically use financing to fund the project such as kitchen and bath remodels.
Billy Bastek, EVP, Merchandising at The Home Depot
Some of the downward pressures they’re seeing isn’t because of a bad economy. They theorize instead that consumers are deferring purchases to see what happens with the economy.
The relative share of spend is more or less equal to where it was before the pandemic. And then, we had some – certainly some pull-forward in our segment. I’d say we’re not completely through the pull-forward, but largely. I mean, we’re now going on four years from the first spring of the pandemic when people were buying lots of grills and patio furniture, et cetera. We’re largely working our way through that.
And then, the higher interest rates started to impact the housing market and housing turnover in particular, which is down some 40%. And I think last quarter – last month, we saw numbers that on an annualized basis were approaching 40-year lows. That’s also impacting customers’ interest in financing larger projects. Everyone’s expecting rates are going to fall, so were deferring those projects. But again, what more recently has happened is a broader concern with the macro economy. There’s just a lot of noise with political and geopolitical environment, unemployment ticked up, inflation keeps eating away at disposable income, and I think people just took a pause as we’ve progressed through the quarter – or more of a pause because of these macro uncertainties.
Ted Decker, President & CEO at The Home Depot
Good News in Online Sales
While comparable sales were overall down at Home Depot, there was a bright spot in online sales. They saw growth there, and they are continuing to build their omnichannel capabilities by partnering with Instacart.
Turning to total company online sales, sales leveraging our digital platforms increased approximately 4 percent compared to the second quarter of last year and for those customers that chose to transact with us online during the second quarter, nearly half of our online orders were fulfilled through our stores. In addition, during the second quarter, we expanded our partnership with Instacart to improve the interconnected shopping experience nationwide. While we are still in the early days of our expanded partnership, we are encouraged with the results we are seeing.
Billy Bastek, EVP, Merchandising at The Home Depot
The increase in online sales is a trend we’d expect to continue. In our recent interview with Tom Penner, Group President – Outdoor Cooking at W.C. Bradley Co., he mentioned that 85% of their sales begin online.