By Deborah Mary Sophia
(Reuters) -Home Depot Inc on Tuesday warned of slowing demand for home improvement goods this year as inflation dents the ability of customers to spend on remodeling projects, sending its shares down as much as 5% in early trading.
The No. 1 U.S. home improvement chain forecast annual profit below Wall Street expectations as it increases spending on wages by $1 billion to tackle labor shortages while struggling with higher costs.
Following an exponential surge in remodeling activity during the pandemic, demand for home improvement tools such as paint and flooring is now cooling as consumers cut back spending, setting the company up for a challenging 2023.
“We expect this to be a year of moderation in demand for home improvement,” Chief Executive Ted Decker said on a post-earnings call.
Home Depot is also seeing elevated input costs despite taking cost-control measures, while a tight U.S. labor market has prompted it to invest more in employee wages and benefits.
Wells Fargo analysts said the company’s move to spend $1 billion more in wages for its frontline hourly associates could raise doubts around the profitability of Home Depot.
“The macro environment seemingly has caught up with Home Depot,” said D.A. Davidson analyst Michael Baker as it now braces for the impact of higher borrowing costs and declining home prices.
Rising wages and a weak consumer sentiment also led retail bellwether Walmart Inc to take a cautious stance for 2023 as it forecast annual profit below estimates on Tuesday.
Home Depot’s comparable sales fell 0.3% in the fourth quarter, driven by a 6% drop in customer transactions. Analysts on average expected a 0.6% increase.
The company expects earnings per share to decline in the mid-single digits percentage range for 2023, while analysts were expecting a 0.4% increase to $16.72, according to Refinitiv data.
(Reporting by Deborah Sophia in Bengaluru; Editing by Arun Koyyur)
