RETAIL ALERT | What we learned from Home Depot’s Q3 Earnings Report

Although Home Depot executives sounded confident and upbeat during their Q3 conference call, the message itself was more measured and cautionary. Both revenue and earnings per share beat expectations for the quarter; however, revenue declined by $1.16 billion and net income declined by $0.53 billion compared to the prior-year quarter. With one quarter to go in its 2023 fiscal year, the company narrowed its guidance for the year and did not provide an outlook for fiscal year 2024.

Q3 by the numbers:

• Sales declined by 3.0% compared to the third quarter of fiscal 2022 and were negatively impacted by lumber and copper deflation as well as storm-related overlaps. 
• Comp sales in the U.S. decreased 3.5%, marking the fourth consecutive quarter of negative comp sales.
• Transactions declined by 2.4%, and the average ticket declined by 0.3%.
• The company had a successful Labor Day appliance event and a record year for Halloween sales. 

The Complex Pro:

Depot executives say the addressable market for Pros is $475 billion, of which $200 billion is made up of larger Pros doing more complex jobs – or what Depot calls the Complex Pro. The company believes the Complex Pro is one of the biggest growth opportunities for them and they are investing in new capabilities and functionalities to capture a greater share of the Pro wallet. 

• Although Pro volume outperformed DIY in the quarter, Depot said that the performance gap between Pros and DIYers was the narrowest they have seen in some time.

2023 is the year of moderation:

Depot executives continued to categorize 2023 as the year of moderation for the home improvement industry as customers remain engaged with smaller projects and pressure remains in certain big-ticket, discretionary categories. 

• Depot evaluates the health of a category by tracking home improvement spending as a percent of Personal Consumer Expenditures (PCE), which is still below 2019 levels.
• The balance between transactions and the average ticket has been impacted by pricing, volume that has been pulled forward, and interest rates.

Retail priorities remain unchanged:

Depot is focused on a Get Stores Right (GSR) initiative that aims to have the right products in the right quantities to achieve the industry’s highest on-shelf availability rates. The company has placed a high priority on creating a frictionless shopping experience.

The outlook:

Depot narrowed its guidance for fiscal year 2023 to a revenue decline of 3% to 4% compared to a prior range of 2% to 5%.

• The company did not provide an outlook for fiscal year 2024. 

What this means for you:

Our advice for brands has not changed from last quarter – brands should lean into ways in which their products provide value for the smaller projects that homeowners are electing to undertake. It will also be important to demonstrate how they can support the company’s key priorities, including:

• Increasing OSA rates while also managing inventory levels.
• Demonstrating how their products help save time and money for Pros and DIYers.