Home Depot customers are spending more, but that’s mainly due to inflation

By Paul R. La Monica, CNN Business

Good news for home improvement retail giant Home Depot: Sales were up nearly 6% from a year ago, topping Wall Street’s forecasts. Earnings were better than expected, too.

Now for the bad news: Home Depot reported fewer customer transactions again.

The DIY leader said in its third quarter earnings report that the number of customer transactions fell more than 4% from a year ago. But those shoppers are spending more, partly due to inflation. Home Depot noted that the average customer ticket was nearly $90, up about 9% from a year ago.

This is a continuation of a trend this year for Home Depot. Overall transactions are down more than 5% during the first nine months of the company’s fiscal year, but shoppers spent nearly 10% more per visit.

“Despite a rising cost environment, consumers typically continue to treat their homes as assets worth of investment,” Shoggi M. Ezeizat, an analyst at research firm Third Bridge, said in an email to CNN Business after the earnings report Tuesday.

Still, Home Depot CEO Ted Decker noted in the earnings release that it continues to be a “challenging and dynamic environment.”

Shares of Home Depot were up more than 2% in late morning trading Tuesday. Rival Lowe’s, which will report its third quarter results Wednesday, was up about 2% as well.

Both stocks have fallen sharply this year along with the broader market. Lowe’s is down nearly 20% and Home Depot is off about 25%. Concerns about the slowdown in the housing market, as surging mortgage rates and sky-high home prices make it difficult for first-time buyers to purchase a house, are weighing on the stocks.

That could be one reason why Home Depot left its outlook for the rest of the year unchanged as opposed to increasing its guidance.

“Home Depot is not immune to a tightening economy,” Neil Saunders, managing director of GlobalData, said in a report. Saunders noted that the DIY customer “has cut back to save money” and that the housing market has “softened significantly.”

It may only get worse, especially as the Federal Reserve seems intent on continuing to raise interest rates to fight inflation, even if that further dents the housing market.

“Moving into 2023, the picture becomes more complicated and much depends on the trajectory of the economy,” Saunders said. “Pressures on consumers will continue to mount, and the backlog of home projects will be reduced, so the year ahead could be a much softer one.”

But Home Depot executives expressed hope on a conference call with analysts that consumers would continue to spend, despite the numerous economic challenges.

“We are operating in a broad-based inflationary environment, not seen in four decades while managing through constrained global supply chain conditions, all against the backdrop of monetary policy shifts intended to moderate demand. To date, our customer has proven resilient,” said Home Depot chief financial officer Richard McPhail.

Still, Home Depot CEO Decker conceded that these are strange times for the economy. He said during the conference call that “our transactions have been stronger than initially thought with this inflation.”

Decker noted though that it’s still hard to get a read on how consumers feel about the economy. He pointed out that sales of grills were down in the quarter but that the company just had one of its strongest quarters for sales of patio furniture.

“There are definitely some mixed signals. It’s definitely got our attention, and that’s why we’re cautious,” he said.

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