Home Depot has been quietly struggling and it could be bad news for the US economy

America's favorite home improvement retailer has been struggling of late, and recently it cut its earnings projections for the next year, citing a slowdown in the housing market. On December 9, the retailer updated its preliminary guidance for the upcoming fiscal year, and based on the cautious report, it seems like the retailer doesn't anticipate the housing market rebounding anytime soon.

In its third-quarter earnings report, Home Depot revealed that its comparable sales in the U.S. only increased by 0.1% on a year-on-year basis, missing the retailer's estimates by a long shot. The retailer further cut its full-year profit forecast after missing Wall Street’s earnings expectations for the third straight quarter. The retailer attributed the slump to a tepid home improvement demand, low consumer spending, and a lack of storm activity, which in the last year had grown its sales, as homeowners looked to prepare for the hurricanes. Further, according to Placer.ai, the retailer also saw a drop in foot traffic by about 0.4% during the quarter as well. 

“Our results missed our expectations primarily due to the lack of storms in the third quarter, which resulted in greater-than-expected pressure in certain categories. Additionally, while underlying demand in the business remained relatively stable sequentially, an expected increase in demand in the third quarter did not materialize. We believe that consumer uncertainty and continued pressure in housing are disproportionately impacting home improvement demand,” said Ted Decker, chair, president, and CEO, in a statement. 

Unfortunately, in its forecast for the next fiscal year, the retailer didn't seem too hopeful either. As per The Home Depot's latest projections, it expects a comparable sales growth of flat 2% and diluted earnings-per-share to increase approximately by 4%. The company expects its total sales to grow by approximately 2.5% to 4.5%. The retailer's more than modest projections can be attributed to the increasing rates in the housing market, which have made it impossible for new home buyers to break in, as per The Street. Furthermore, the uncertain economy and rising costs have forced consumers to put off taking on big home improvement projects. “Looking forward to 2026, we anticipate these pressures will persist, as we have not yet seen a catalyst for an inflection in housing activity,” said Chief Financial Officer Richard McPhail at the company’s investor event in New York.

McPhail previously told CNBC that homeowners have been in a "deferral mindset" since 2023, which has led to a bit of a "waiting game" for the retailer. He added that the big improvement projects have dropped in frequency as higher interest rates have led to steeper borrowing costs that most homeowners used to pay for improvements. However, he stressed that the demand was stable across the last two quarters, but the lack of hurricanes resulted in a sales slump compared to last year, when Hurricane Milton hit the country. However, in its report, Home Depot indicated that it is ready to pivot toward longer-term strategies to ensure its success, while bracing for slow sales in the coming year. 

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