Home Depot Raises Outlook as Fewer Customers Spend More

Chief Financial Officer

Richard McPhail

said rising home values have helped maintain spending on homes, even as prices and interest rates rise.

“The homeowner has never had a balance sheet that looks like this,” Mr. McPhail said on Tuesday’s earnings call, adding that home-equity values are up 40% the last two years. “They’ve seen the price appreciation, and they have the means to spend.”

Home Depot said Tuesday that it now expects revenue to rise 3% this year after a strong start.

The new view came after a warning in February that sales would only rise slightly. It lifted its profit forecast too, with per-share earnings now expected to rise at a mid-single-digit rate.

The company’s results are the latest sign that consumers are absorbing higher prices. On Tuesday, the Commerce Department reported that retail sales rose a seasonally adjusted 0.9% in April from the prior month, even with inflation close to its highest level in four decades.

Walmart Inc.

on Tuesday also reported an increase in sales in its most recent quarter, although costs dented profits.

Home Depot was a major beneficiary during the height of the pandemic. At one point during the last two years, the retailer posted four straight quarters of comparable sales growth above 20% as the public-health crisis’s social disruptions left people spending more time in their houses.

It is now confronting a slowdown from that high, as well as rising inflation and continued supply-chain disruptions. A late start to spring in most parts of the country, as well as the lack of a spending boost from last year’s government stimulus checks, contributed to the decline in customer transactions.

But average spending per transaction is growing faster than Home Depot had expected. That is largely due to inflation across several product categories, including core commodities like lumber and building materials.

If inflation persists at its current levels, the company said average spending per transaction would likely rise between 10% and 12% for the year.

For the three months ended May 1, Home Depot posted earnings of $4.2 billion, or $4.09 a share, compared with $4.1 billion, or $3.86 a share, in the first quarter of last year. Wall Street analysts had expected earnings of $3.71 a share, according to FactSet.

First-quarter sales came in at $38.9 billion, ahead of Wall Street expectations of $36.7 billion.

Home Depot shares rose 2% in early trading to $301.88. They are still down more than 27% this year.

Corrections & Amplifications
Home Depot said the average amount spent per transaction rose 11.4% in the first quarter. An earlier version of the article incorrectly said the metric rose 11.2%. (Corrected on May 17.)