| | | | What's Going On? | Home Depot (HD) reported a lower third-quarter profit due to a continuing decline in home improvement activity. The company revised its sales growth and earnings forecasts due to weaker customer demand. | Home Depot sells building materials, home improvement products, lawn and garden products, and décor products, as well as facilities maintenance, repair, and operations products. | The stock price has declined over 16% year-to-date, and more than 7% over the past six months. If home improvement activity continues to decline, lower sales and earnings may push the stock price down. |
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| | | | | Consumer Worries, Serving Professionals | Consumers are anxious about the economy, and that impacts their decisions about home improvement spending. | The University of Michigan tracks consumer sentiment, and the November results fell to one of the lowest levels on record. Less confidence means less spending on big-ticket items, including home improvements. | Home Depot also has some marketing opportunities that could help the stock price. The US has a housing shortage, and the limited supply of homes increases prices. Higher prices generate more home equity. | The payoff? Professional builders and contractors need Home Depot's products and want to capitalize on the need for housing. The company reports that: "The pro builder customer base spends more per project, demands greater supply reliability, and is less vulnerable to short-term consumer sentiment." | Growing the professional market can offset declines due to weak consumer confidence. |
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| | | | | Where We Stand Now | Many consumers borrow to finance home improvements, and current events are causing homeowners to delay projects. | The employment rate climbed to 4.4% in September (the most recent report), and several large companies have announced large layoffs in recent weeks. Borrowers need a stable income source to make loan payments, and homeowners may not borrow due to job loss concerns. | There is also uncertainty about the direction of interest rates moving into 2026. If interest rates move higher, financing a home improvement project will be more expensive. | Older homes need more repairs, and that trend is a positive for Home Depot. The median age of owner-occupied homes is now 40 years, vs. 31 years in 2005. |
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| | | | | How to Respond | Focus on long-term price performance
Home Depot's stock price (down 19%) has underperformed the S&P 500 (up 10%) this year. However, Home Depot has slightly outperformed the S&P 500 over the past 10 years. Stay focused on long-term performance.
Industry-wide challenges Other companies in the home improvement industry are facing the same challenges. Lowes, Home Depot's big competitor, lowered its full-year profit outlook due to economic uncertainty.
Veteran leadership team Home Depot's senior leadership team members have years of experience with the business. They are well-positioned to navigate an industry downturn.
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| The Patriot Perspective | There's no getting around it: The home improvement industry is facing challenges that may lead to lower sales and earnings. The stock price may not perform as well as stocks in other industries. | However, Home Depot's veteran management team has worked through challenges before, and they may be able to minimize sales declines by focusing on the professional builder/ contractor market. Take the long view when it comes to Home Depot. | Stay steady,
Kenneth Boyd
Author, Finance Writer, Former Investment Advisor & CPA |
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