16 November 2022 | Other

Home Depot claims that customers are resistant to inflation

Home Depot Inc. revenues and profits have exceeded expectations due to home improvement projects that accumulated during the pandemic. It reports that they continue boosting sales growth.

For the last quarter, the company's comparable sales exceeded analysts' forecasts by 3%. They were up by 4.3%, and earnings per share reached $4.24, which also exceeded the forecast.

Also, it should be noted that the growth is not due to a jump in sales, but due to inflation, which has affected the decrease in the transaction volume.

The average customer check in the third quarter of last year was nearly 9% lower than in the third quarter of this year, which was about $89. At the same time, the number of transactions was down 4.3%.

Bloomberg Intelligence senior industry analyst Drew Reading said that the reason for the increase was solely the higher average check due to inflation. Perhaps the continued growth in the number of professional clients was also one of the reasons. In addition, the sharp decrease in home sales can have a negative influence on the continued decrease in transactions.

Earlier this year, Home Depot CFO Richard McPhail was talking about compensating for the increase in the average check with a decrease in the number of transactions. The company had expected zero sales growth in total. However, he said, customers were more resistant.

The situation in the U.S. housing market has a great influence on Home Depot's business. Home sales are down due to rising interest rates. The University of Michigan conducted a survey among consumers and found out that about 80% of people surveyed classified conditions for buying a home in November as bad ones.

Despite this, current Home Depot projects are expected to maintain the demand regardless of relocations or new home purchases by Americans.

CEO Ted Decker said that the company will continue participating in any operating environment. He believes that the fundamental housing shortage in the country and home aging still create favorable conditions for the company's business in the midterm and longterm perspective.

According to McPhail, the probability of people staying in their current homes and starting new improvement projects there is very high. Higher mortgage rates are contributing to this.

Home Depot had previously given its full-year forecast of probable growth in earnings per share by an average single-digit percentage and is following it.

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