By Deborah Mary Sophia
(Reuters) -Home Depot Inc warned of slowing demand for home improvement goods this year as inflation dents the ability of customers to spend on remodeling projects, sending its shares down as much as 6% in morning trading on Tuesday.
The No. 1 U.S. home improvement chain forecast annual profit below Street expectations as it increases spending on wages by $1 billion to tackle labor shortages while struggling with higher costs.
Demand for home improvement tools is dropping from pandemic-highs as homeowners become increasingly sensitive to higher prices.
Home Depot (NYSE:HD) said demand for its products such as soft flooring and roofing slowed, even as builders and contractors continued to purchase its big-ticket items such as pipes and fittings.
"We expect this to be a year of moderation in demand for home improvement," Chief Executive Ted Decker said on a post-earnings call.
"While we don't love the moderation, you can't fight the tide (with consumer spending) going back to services, people traveling and whatnot."
Home Depot is also seeing elevated input costs, while a tight U.S. labor market has prompted it to invest $1 billion more in wages for its frontline hourly associates.
The company expects 2023 per-share profit to decline in the mid-single digits percentage range, while analysts expected a 0.4% increase to $16.72, according to Refinitiv data.
"Home improvement is going to suffer. The consumer just doesn't want to write big checks and borrow money to spend on things that they don't need right now," Neuberger Berman portfolio manager John San Marco said.
Rising wages and a weak consumer sentiment also led retail bellwether Walmart (NYSE:WMT) Inc to take a cautious stance for 2023 as it forecast annual profit below estimates on Tuesday.
Home Depot also reported a surprise drop in fourth-quarter comparable sales as customer transactions fell.
"The macro environment seemingly has caught up with Home Depot," said D.A. Davidson analyst Michael Baker.