For the first time since 2019 The Home Depot missed Wall Street’s revenue expectations.
This, as the home improvement retailer provided a muted outlook to for fiscal 2023 to its investors on Tuesday’s (Feb. 21) fourth-quarter 2022 earnings call.
“The highlight remains the high pro spend,” Chief Executive Officer Ted Decker said on the call. “I mean that is still the strongest piece of the business.”
The company reported that it sees shoppers increasingly using their discretionary dollars toward experiences and travel and away from goods, while many simply burn through their savings amid near-constant inflationary pressures.
The slowdown in do-it-yourself (DIY) spending has been cutting into Home Depot’s COVID-era profit drivers.
“During COVID, we saw a shift into goods. Over the last really almost two years, we’ve seen a gradual shift back away from goods into services and we think our market has reflected that and we think that that dynamic could put some pressure on our market,” said Chief Financial Officer Richard McPhail.
Read more: Home Depot Aims at B2B Friction to Boost Lucrative Professional Customers
Home Depot’s earnings reflected a broader softening in the housing market, which is a key driver of spend for the home improvement sector — but the B2B line of providing professionals with key appliances and goods remained relatively steady, compared to macro headwinds affecting the rest of the business.
“Average big ticket comp transactions or those over $1,000 were up 3.8% compared to the fourth quarter of last year,” said John Deaton, EVP of supply chain and product development. “While we saw big ticket strength across pro heavy categories like portable power pipe and fittings and gypsum, we did experience softness in other categories like laundry, soft flooring and roofing.”
He added that during the fourth quarter, pro sales growth outpaced DIY sales while the pro backlog continued to remain elevated compared to historical averages.
Home Depot has benefited, going back at least the last seven quarters, from solid sales growth due to higher prices for big-ticket items.
As reported by PYMNTS, while professional contractors and builders make up just 10% of Home Depot’s customer base they represent around 50% of the company’s sales, making them a mission critical consumer audience for the home improvement retailer.
“We haven’t talked much about the pro in this call,” Decker told investors during the earnings presentation. “But we are still 100% focused on building out all the capabilities in the pro ecosystem that will allow us to capture more wallet share with the pro and move up to larger purchases. We are extremely pleased with the results we’re seeing as we continue to put those capabilities in the marketplace.”
In order to better serve not just pros, but all of the retailer’s customers, Home Depot announced on the fourth quarter earnings call that it plans to invest an additional $1 billion in annualized compensation for its frontline, hourly associates.
“The most important investment we can make is in our people. We believe this investment will position us favorably in the market, enabling us to attract and retain the level of talent needed to sustain the customer experience we strive to deliver,” Decker said. “It harkens back to our values wheel of investing in our associates. As Home Depot’s founders said, if you take care of the associates, they take care of the customer, and then everything takes care of itself.”
The investment will span wage increases and benefits, as well as training and career development for associates, and is slated to kick off in the first quarter of fiscal 2023.
“In order to provide the best customer experience in home improvement, we must focus on cultivating the best associate experience in retail,” said Anne-Marie Campbell, executive vice president of U.S. stores.
Looking ahead, company executives noted the challenging and dynamic environment made up of persistent inflation, ongoing global supply chain disruptions, and a tight labor market.
“As an offset to this pressure, we plan to continue to capture market share leveraging our competitive advantages, the investments we have made over many years, and the unique advantage that our orange blooded associates give us over our competition,” said Decker.
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