Home Depot sees shift in customer behavior

Core Insights - Home Depot is experiencing a decline in foot traffic and sales due to economic factors such as inflation, job losses, and rising interest rates [4][10][11] Economic Environment - The Consumer Price Index indicated a 3% inflation rate in September, up from 2.3% in April, with effective tariff rates on imports rising to 17.9%, the highest since 1934 [4] - The U.S. unemployment rate reached 4.3% in August, the highest since 2021, contributing to a cash crunch for consumers [6] - The average Home Equity Line of Credit (HELOC) rate increased from below 4% in 2021 to 7.86% in 2025, impacting funding for home improvement projects [9] Home Improvement Trends - Certain home improvement projects, such as garage door replacement and minor kitchen remodels, provide a high return on investment (ROI), with garage door replacement yielding a 268% ROI [8] - Despite the potential for value increase, fewer customers are visiting home improvement stores, leading to a decline in transactions [10][11] Company Performance - Home Depot reported a slight 1.4% increase in average ticket size year-over-year, attributed to higher prices rather than an increase in customer volume, as transactions fell by 0.4% [11] - Sales in the building material and garden equipment sector decreased by 1.1% through August, indicating a broader trend affecting the industry [14] Tariff Impact - Recent tariffs on softwood lumber and kitchen cabinets are expected to further strain Home Depot's sales and foot traffic, with a 10% global tariff on softwood lumber and a 25% tariff on kitchen cabinets announced [16][17] - The U.S. imports about one-third of its lumber, with 85% of those imports coming from Canada, making the company vulnerable to tariff fluctuations [16] Future Outlook - Home Depot's third-quarter results, expected in mid-November, will provide further insights into the impact of these economic challenges on the company's performance [17]