Although the early 2020s will be remembered for the chaos that covid wrought upon markets and individuals, there were some silver linings to seemingly unprecedented times.
Working from home gave many Americans a lot more time on their hands. And stay at home orders, while inconvenient, forced many of us to look around the house and face the projects we'd been putting off.
Whether it was a deteriorating deck in need of some upkeep, that bothersome paint job in the downstairs powder room, or more ambitious projects, like full on kitchen renovations, sheltering in place at home was actually great for home improvement.
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And thanks to a drastic cut in interest rates, stimulus check payments, and a labor shortage, hiring professional contractors was harder to come by. So many Americans tried their hand at doing projects themselves.
And Home Depot (HD) was right there when we needed it most, ready to serve the most ambitious DIY-ers and weekend warriors ready to try their hands at handiness.
Thanks to its over 2,300 stores across the U.S. and close proximity to most suburban communities, Home Depot saw extreme growth during the pandemic. And once covid waned and folks returned to work, the housing market boomed and professional labor got back to work. Home Depot was primed to benefit from both of these trends, since it caters to simple DIY-ers and professional contractors.
Home Depot expands post-pandemic
Thanks to its successes in the early 2020s, Home Depot has been in a position to expand.
In March, Home Depot announced it would open up distribution centers across several key areas in the U.S. specifically for home improvement professionals.
The distribution centers will be larger facilities meant to cater specifically to pros and contractors who tend to work on bigger projects. The centers will stock materials like lumber, insulation, roofing shingles, and other supplies available in industrial amounts with the ease of access and pickup that Home Depot is already known for.
Later in March, Home Depot undertook its largest acquisition ever to gain an even stronger foothold in the pro sphere.
It acquired SRS Distribution of McKinney, Texas, for $18.25 billion. SRS Distribution provides goods and materials for home-improvement contractors, like landscaping tools, roofing supplies, lumber, and pool materials.
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Home Depot management still cautious
But management isn't confident it will all be easy for the retailer.
In its Tuesday morning Q1 2024 earnings report, Home Depot missed revenue expectations, reporting $36.42 billion versus Wall Street's expected $36.64 billion. U.S. comparable store sales, or comps, fell 3.2% year-over-year.
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Management largely blamed high interest rates, which they suspect has dampened home improvement project ambition over the last few months.
"Well, interest rates are going – they’re coming down soon," CFO Richard McPhail told analysts on the earnings call. "Our customers tell us, hey, with that in mind, with that on the horizon, we’re just going to wait and so that’s really the most important dynamic from an income perspective."
CEO Ted Decker echoed the sentiment that the Fed interest rates may put a damper on demand in the short term, and he isn't waiting for a cut around the corner.
"We're not fed watchers here necessarily," Decker said. "And we said at the beginning of this year that we had a neutral stance on housing."
Decker added that higher interest rates may be decreasing the appetite for home improvement projects, as people put off pricier projects in favor of saving their hard-earned dollars.
"I mean it was just six months ago that interest rates hit their peak in October of 2023 mortgage rates," he said. "So those are the type of projects when you move into a new house, you update your kitchen; you update a master bathroom, et cetera. And then if you are going to stay in place, and take on those type of projects outside of a move, you're generally going to finance. And as we've seen the rates tick up and the impact of rates ticking up, that's impacting that demand."
Still, Home Depot isn't pessimistic about prospects of the business, especially as spring and summertime projects coming up.
"What we focus on internally is controlling what we can control," Decker said.
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