Why Is Home Depot Stock Dropping?
Home Depot, the world’s largest home improvement retailer, has faced several economic challenges in recent years, including inflation, tariffs, and high interest rates, all contributing to a slowdown in its growth.
Impact of Inflation
Inflation has exerted pressure on both Home Depot and its customers. Rising prices have led consumers to become more cautious with their spending, particularly on big-ticket items. In the second quarter of 2023, Home Depot reported a 0.3% decline in the average receipt and a 2.4% decrease in customer transactions compared to the same period the previous year, indicating that consumers were tightening their budgets. Meanwhile, recent inflation numbers suggest that interest rates will remain elevated as the Fed delays rate cuts in response, so the market anticipates less construction and renovation activity than it had previously. Home Depot’s stock price assumed more increased demand than is likely to materialize.
Effect of Tariffs
Trade policies and tariffs have also played a significant role in affecting Home Depot’s costs and supply chain dynamics. The company’s Chief Executive, Ted Decker, acknowledged that while over half of Home Depot’s products are sourced domestically or from North America, tariffs still pose challenges. He noted that the company has made efforts to diversify its sourcing over the past several years to manage through various tariff environments. Additionally, Home Depot has taken a data-driven approach to mitigate tariff impacts by analyzing the effects at the SKU level and working closely with supplier partners to address potential cost increases.
Financial Performance
Despite these challenges, Home Depot reported better-than-expected fourth-quarter revenue for fiscal 2024, with sales of $39.7 billion, a 14.1% increase from the same period the previous year. Comparable sales increased by 0.8%, marking the first positive quarter since 2022. However, the company offered a cautious outlook for fiscal 2025, forecasting total sales growth of 2.8% and comparable sales growth of 1%, reflecting the ongoing economic pressures.
As the following graph shows, the dip in Home Depot’s stock price is relatively small in comparison to its overall gains from the last 12-months. The fundamentals of Home Depot remain strong, and investors with a long-run focus may even want to buy the present dip.
In summary, Home Depot’s recent performance has been influenced by a combination of inflationary pressures, tariffs, and high interest rates, leading to a more subdued growth outlook. The company’s efforts to navigate these challenges include strategic sourcing, supply chain adjustments, and a focus on smaller-scale projects to adapt to changing consumer behaviors.
Other References
Home Depot forecasts weak annual sales growth as demand wavers
Trump’s tariffs worry companies. Here’s what they’re saying about the uncertainty.
Franklin Carroll
Franklin Carroll is Kukun's VP of Modelling and Analytics; After finishing his studies at the University of Chicago, he worked at Fannie Mae where he helped build Collateral Underwriter, roll out the Value Verify initiative, and specialized in collateral related and credit related policy.
Published March 9, 2025
