Dive Brief:

• Home improvement company The Home Depot Inc. is forecasting relatively flat sales and comparable sales growth in fiscal 2023 due to waning consumer demand and increasing prices, executives said during the company’s fourth quarter earnings call Tuesday.   
• Atlanta, Ga.-based Home Depot is “starting with the assumption of flat consumer spending,” CFO Richard McPhail said, in response to questions regarding its 2023 guidance.
• McPhail also highlighted a continued shift in spending by consumers from goods to services as something the company has observed “over the last seven quarters” and which “we would anticipate…would put slight pressure on our market,” he said.

Dive Insight:

Home Depot’s overall sales rose .3% or $112 million to $35.8 billion in the quarter ending Jan. 29 from the year-earlier fiscal fourth quarter, according to its earnings results. Comparable sales — which include sales from physical or online locations open more than 52 weeks —  for the quarter declined by .3%, a drop the company attributed to a steep 50% downswing in lumber prices year-over-year. This negatively impacted comparable sales for the quarter by 70 basis points, executives said on the call.

Home Depot will aim to increase market share to offset these pressures, McPhail said. The company is also making an approximately $1 billion investment in annualized compensation for its frontline, hourly workers, beginning in the first quarter of fiscal 2023. The investment will help to “position Home Depot favorably in the market,” company Chairman, President and CEO Ted Decker said in response to questions. 

“We all know labor has been tighter and rates have been higher. But just last year we were able to hire 200,000 associates,” Decker said. “But we believe this move is going to protect our customer experience for the near medium and long-term.”

The company will invest in “wage, benefits, training, and career development for its associates,” according to its earnings results.

McPhail said the company was “committed to our investment” in response to questions about whether Home Depot would still make them as planned in 2023 or spread it out over a period of several years if comparable sales fell short of its flat expectations. 

“With respect to how we manage our P&L, we always operate with a degree of financial flexibility,” he said. “And so, in any environment, we're going to assess, what that environment means for us, and how we should manage the P&L.”

Consumer prices ae still surging, growing by .5% in January — the largest increase in three months — with Federal Reserve officials signaling they may conduct more aggressive monetary tightening in the future if inflation refuses to cool. The Fed has hiked interest rates to a range between 4.5% to 4.75%.

Home Deport is not alone in anticipating future economic turbulence.  Despite reporting a strong fiscal fourth quarter — cataloging a 7.3% jump in revenue to $164 billion for the quarter — retailer Walmart also expects to see continued economic uncertainty as the year progresses, CFO John Rainey said Tuesday during the company’s earnings call.

“While the supply chain issues have largely abated prices are still high and there is considerable pressure on the consumer,” Rainey said. “Attempting to predict with precision these swings in macroeconomic conditions and their effect on consumer behavior is challenging.”

The combination of high prices and spend-wary consumers is causing Walmart to take a “cautious outlook” for the year, expecting consolidated net sales growth of 2.5% to 3%, the company reported.