Home Depot costs up, but so are sales as customers pursue smaller projects

Home Depot on Tuesday reported sales growth for its fiscal second quarter but said customers are still reluctant to pursue large home improvement projects because of higher interest rates and economic uncertainty.

The Vinings-based retail giant said same-store sales grew 1% in its latest quarter, but that didn’t meet analysts’ expectations, according to Bloomberg.

Home Depot kept its guidance in place, saying it still expects sales across its footprint to grow 2.8% for the fiscal year. Home Depot is an economic bellwether and its financial results are closely watched as a gauge of consumer spending and the housing market.

While high interest rates have kept prospective homebuyers on the sidelines and slowed renovation activity, Home Depot customers have “engaged more broadly in smaller home improvement projects,” Ted Decker, chairman, president and CEO, said in a statement.

President Donald Trump’s tariff policy has complicated the year so far. While the stock market has rebounded from earlier instability, U.S. consumer sentiment fell in August as a wave of new tariffs took effect early this month, fueling fears of rising inflation and unemployment.

Almost 60% of consumers expect to cut back on spending this year if there are large price increases, according to an Aug. 15 report from the University of Michigan’s Surveys of Consumers.

Home Depot said last quarter it did not expect widespread price increases on products and was working to diversify where it buys inventory. The retailer sources about half its products in the U.S.

Most of the company’s imported products for the second quarter landed ahead of tariffs, according to a note from Joe Feldman, senior managing director and assistant director of research at Telsey Advisory Group.

“The company believes it is relatively well-positioned even if it has to sustain higher costs, given Home Depot’s customer base tends to be stronger financially than U.S. consumers generally,” said the note.

Home Depot was optimistic about the second quarter, calling it the company’s “Super Bowl season” in a May earnings call.

The company said Tuesday the quarter met its internal expectations.

Its sales grew almost 5% to $45.3 billion in the quarter that ended Aug. 3. But its cost of sales rose nearly 5% to $30.1 billion compared to the same period last year.