Home Depot Inc. said Tuesday it will spend $1 billion more in annualized compensation for its frontline hourly workers in the United States and Canada.
The Atlanta-based home improvement chain said every hourly employee will get a raise starting this month. Starting pay will be at least $15 per hour.
Wells Fargo analysts, however, said the move could raise doubts about the profitability of Home Depot.
The move was announced as Home Depot faces a surprise drop in fourth-quarter sales, and on Tuesday it forecast an annual profit below Wall Street estimates. Its shares dropped 5.4 percent as a result, to a three-month low.
The company sees higher prices limiting demand, as it experiences higher costs and labor shortages. Sales at its smaller rival, Lowe’s Co., also dropped.
The pandemic surge for home improvement product sales, for products such as paint and flooring, is now cooling, as people keep their spending more at check, even as builders and contractors continued to purchase its big-ticket items such as pipes and fittings.
“We expect this to be a year of moderation in demand for home improvement,” CEO Ted Decker said on a post-earnings call.
“While we don’t love the moderation, you can’t fight the tide, [with consumer spending] going back to services, people traveling, and whatnot.”
“Home improvement is going to suffer. The consumer just doesn’t want to write big checks and borrow money to spend on things that they don’t need right now,” Neuberger Berman portfolio manager John San Marco said.
Rising wages and a weak consumer sentiment also led retail bellwether Walmart Inc. to take a cautious stance for 2023 as it forecast on Tuesday that annual profit will be below estimates.
“The macroenvironment seemingly has caught up with Home Depot,” said D.A. Davidson analyst Michael Baker, as it now braces for the impact of higher borrowing costs and declining home prices.
Home Depot’s comparable sales fell 0.3 percent in the fourth quarter, driven by a 6 percent drop in customer transactions. Analysts on average expected a 0.6 percent increase.
The company expects earnings per share to decline in the range of mid-single digits for 2023, while analysts were expecting a 0.4 percent increase, to $16.72, according to Refinitiv data.
