AFTER THE PANDEMIC BOOM, 2023 SALES ARE PREDICTED TO DROP

When Home Depot missed its revenue expectations for Q1, it reduced its 2023 fiscal year forecast. The world’s largest home improvement retailer predicted that sales will decline between two and five percent this year. Previously, the company had said sales in 2023 would be flat.

Revenue for the quarter was $37.26 billion versus $38.28 billion expected (all figures USD). Comp sales fell 4.5 percent in the quarter. First quarter net income was $3.87 billion, down from $4.23 billion a year earlier.

Home Depot had reported a healthy performance in 2022, with sales up 4.1 percent following two of the best years of growth for the company—and the industry—in decades. But the market was already slowing through 2022, as LBM prices tumbled back down from the historic highs seen during the first two years of the pandemic.

Forecasts by all the big home improvement retailers have tended to be moderate for the rest of this year, as the momentum from home improvement and reno investments begins to tail off. Couple that with the Bank of Canada hiking its central rate multiple times—to combat inflation, it says. That inflation is affecting essential sectors such as food costs, and people are simply spending their money elsewhere. Home Depot said that customers were buying fewer big-ticket items.

The results fit a trend that independent dealers are already seeing—a slowdown in 2023 versus a year of growth in 2022.

Canadian Tire Corp. shared similar pain in its Q1 results call, as overall net income fell 3.4 percent year over year. Comp sales for its

Canadian Tire stores were down 4.8 percent. According to Greg Hicks, president and CEO of CTC, in a call to analysts, the outlook is more cautious moving through 2023.

“Given the macro backdrop combined with what we are seeing in the performance of our business, we are expecting a more constrained demand environment as we look forward, especially in the first six months of this year,” Hicks said. (Surely the most genteel way of saying, ‘People are buying less’ that we’ve heard in a long time!—Editor.)

Like Home Depot, Canadian Tire has seen a shift in spending patterns by its customers. Discretionary spending has slowed, including for larger-ticket items, while its so-called “essentials” category has been moving a lot more product, especially automotive SKUs and pet supplies.

The expectations of independent dealers across Canada indicate they are facing the same concerns.

Hardlines surveyed hardware and home improvement dealers earlier this spring and found that most are facing flat sales for 2023. The average for all dealers that responded is a decline of 0.7 percent. There were some highs—a few respondents in Ontario expect five or even 10 percent gains this year, and Saskatchewan dealers were most positive overall, on average expecting a two percent gain. In Nova Scotia, some dealers expect gains of seven, eight, and even 10 percent, despite their concerns about sourcing and product shortages.

However, most dealers in the survey anticipate zero growth in 2023. Dealers that expected a real drop in sales were typically forecasting a decline of 10 percent—and a few cited expected downturns of 20 and 25 percent. The dealers predicting the greatest anticipated losses are generally strong independents who had big gains in 2022, following a banner year for the entire industry in 2021.

Dealers will have a hard time maintaining the momentum of the past three years. The slowdown began last year: after a strong first quarter, the industry saw sales drop off as interest rates and inflation sped up, coupled with falling LBM prices.

In fact, Hardlines has calculated a modest gain by the industry in 2022 of 4.6 percent, but one that was still below the national inflation rate of 6.8 percent last year.