Home Depot Earnings, Fed, Consumer Confidence: What to Watch

As Home Depot (HD) prepares to report its fourth-quarter earnings on Tuesday, investors are keeping a close eye on several key factors that could impact the company's performance. The Federal Reserve's recent interest rate hikes, consumer confidence, and comparable store sales are among the crucial aspects to watch.

Fed's Interest Rate Hikes and Consumer Spending

The Federal Reserve's recent interest rate hikes have had a significant impact on consumer spending, particularly in the housing market. Higher mortgage rates make home purchases and refinancing more expensive, which can discourage consumers from taking on new mortgages or investing in home renovations. This could lead to a decrease in demand for Home Depot's products and services, potentially impacting the company's sales and earnings.

Consumer Confidence and Home Improvement Spending

Consumer confidence has remained relatively strong despite pressure from inflation, with the consumer confidence index at 104.1 in January and expected to be around 102.6 in February. If consumer confidence remains at these levels or improves, it could indicate that consumers are still willing to spend on home improvement projects, which could drive Home Depot's sales and earnings growth.

However, if consumer confidence falls significantly, it could indicate that consumers are becoming more cautious with their spending, which could negatively impact Home Depot's sales and earnings. Therefore, it will be important to monitor consumer confidence levels as we approach the earnings report to gain insights into how Home Depot's earnings may be impacted.

Comparable Store Sales and Revenue per Visitor

Home Depot's comparable store sales have been declining for nine consecutive quarters, with analysts expecting a slight decline in the fourth quarter as well. This trend could be influenced by factors such as inflation, which has affected sales of "big-ticket" items like appliances, and macroeconomic uncertainty.

Additionally, a recent report from Placer.ai showed that visits to Home Depot were down 2.6% year-over-year in 2024, with a 3% decline during the fourth quarter. This decline in visits could potentially impact revenue per visitor, although the report did not provide specific data on this metric.

For the upcoming quarter, several factors could influence these metrics, including holiday sales, inflation and interest rates, new product offerings and promotions, and the overall economic recovery. If Home Depot can capitalize on these factors, it could help improve comparable store sales and revenue per visitor.

In conclusion, Home Depot's earnings trends have historically aligned with consumer confidence levels, and this relationship can provide valuable insights for the upcoming earnings report. The Fed's recent interest rate hikes could have a significant impact on consumer spending on home improvement projects, which could lead to a decline in Home Depot's sales and earnings. However, it's important to monitor consumer confidence levels and other key factors to gain a better understanding of how Home Depot's earnings may be impacted.