Home Depot executives watched sales decelerate at the end of last year and have projected little growth for this year.
However, in an effort to keep turnover costs low, the company is giving $1 billion in raises to “front-line” employees, raises that have already started.
More than half of its 475,000 workers are paid by the hour, implying a yearly bump averaging up to about $4,000 per person.
In a labor market that remains tight and in a business where customer service can be crucial, keeping good workers is a smart idea, said Ted Decker, company chief executive officer, during a conference call with analysts and reporters.
“We hope to improve retention with this,” he said. “That is why we call it an investment.”
Starting pay at the company, which now has 2,322 retail stores in all 50 states, differs from place to place, but is at least $15 an hour, he said.
Home Depot revenues have grown by $40 billion in three years, a surge that started early in the pandemic. Millions of Americans were suddenly spending much less money on travel and hospitality and much more time at home.
Even through much of last year with inflation high and economic uncertainty growing, consumers seemed more interested in getting projects done than in scrimping to save money. However, in the past few months, there has been a deceleration of demand.
“Now, we are seeing more price sensitivity,” Decker said.
“And that’s what we are expecting for 2023.”
Investors who had seemingly grown accustomed to rapid growth seemed somewhat stung by the company’s reshaped projections. Company stock dropped to nearly $300-a-share in mid-morning Tuesday, down more than $16 in the hours after the earnings announcement.
Analyst Ken Leon at CFRA said he expects the new, post-pandemic environment will mean less lift for the company’s stock price in the coming year.
Home Depot’s stock had peaked at $340 a share last March before a long slide that hit bottom around $267 a share in late summer. Leon said he had been expecting Home Depot to reach $350 a share, but now expects shares will only get back to $340 in coming months.
The company reported sales of $35.8 billion for the fourth fiscal quarter, up just 0.3 percent from the same period a year earlier. Net earnings during the period were $3.4 billion, roughly the same as a year earlier.
For the full year, Home Depot had sales of $157.4 billion, up 4.1 percent, from fiscal 2021. Net earnings for the year were $17.1 billion, up from $16.4 billion the previous year.
The current cooling of the market was not really a surprise, and the longer-term outlook for Home Depot is still a rosy one, said Shoggi Ezeizat, an analyst at Third Bridge.
While the housing market has slumped badly with the rise of interest rates, homeowners who are not selling are more likely to take equity loans and then use the money on repairs and renovations, which would fuel Home Depot’s business, he noted.
“The long-term fundamentals remain healthy for home improvement space.”
The company also announced on Tuesday an increase in its quarterly dividend to $2.09 per share.
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