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The yield on the 10-year Treasury note, which influences interest rates across the economy, climbed to its highest level in over two decades on Wednesday. This move typically leads to higher mortgage rates and more expensive loans for home improvement projects.
For Home Depot, this is a headwind because it can discourage homeowners from starting the large, professional-led renovations that drive a big portion of its sales. When it costs more to borrow, people often delay big projects or stick to smaller, essential repairs.
Source: WSJ
US retail sales climbed 1.2 percent in August, a healthy bounce back after a drop in July. The growth was spread across almost every category, helped by families spending on back-to-school items and general goods.
For Home Depot, this is a helpful sign that the American consumer is still willing to spend even as borrowing costs remain high. While the company relies heavily on big home renovation projects that people often finance with loans, a generally healthy consumer usually supports the smaller, everyday maintenance sales that keep stores busy.
Source: Bloomberg Markets and Finance
Analysts see a 90 percent chance that the Federal Reserve will raise interest rates tomorrow. Higher rates make it more expensive for homeowners to take out loans for big renovation projects, which is a major source of sales for the company.
Home Depot has already been dealing with a slower housing market as high rates keep people from moving or starting large-scale repairs. If this starts a new cycle of rising rates, it could delay the recovery in store sales that we have been waiting to see.
Existing home sales fell about 2 percent in August compared to July, despite the highest supply of homes for sale in over a decade. While the median price rose slightly to about $429,000, the slow pace of actual sales suggests that high prices and borrowing costs are still keeping buyers on the sidelines.
This matters because home sales are a major driver for the company. People typically spend the most on renovations and repairs in the year after they buy a home. If the housing market remains frozen, it limits the number of new projects for both DIY shoppers and the professional contractors who make up the company's most valuable customer base.
Source: CNBC
The U.S. economy added 162,000 jobs in August, which was more than analysts expected. The unemployment rate stayed flat at about 4 percent, showing that the job market is holding steady even as the economy cools.
For a retailer like Home Depot, a stable job market is a good sign. People are more likely to take on home improvement projects or hire professional contractors when they feel secure in their jobs. While high interest rates still make it expensive to borrow for big renovations, steady employment provides a floor for the everyday repair and maintenance spending that keeps the company's stores busy.
Source: Bloomberg Markets and Finance
Management has a history of setting a bar they can clear, having topped analyst expectations for three straight quarters. This suggests a steady hand even as the housing market remains slow.
| Expectation | |
|---|---|
| EPS | $3.87 |
| Revenue | $42.80B |