The Trump administration's tariffs on imported lumber and appliances are driving up cost pressures for Home Depot Inc. as executives said Aug. 14 that the overall impact on the home improvement chain could be managed.
"I would say at this point that the tariff environment is manageable. And given our sales and our size and scale, it's even that much more manageable," Home Depot Chairman, CEO and President Craig Menear said on the company's second-quarter earnings call.
Tariffs on imported Canadian lumber and imported washing machines are driving low single-digit percentage cost increases and about 25 basis points of cost pressure, Menear said.
Even higher tariffs — up to 50% — on larger shipments of washing machines drove up industrywide prices by percentages in the mid-teens and are causing some unit fall-off, Menear said, without discussing specifics.
Those impacts will likely start to lessen as Korean manufacturers open production facilities in Tennessee and South Carolina, Menear said.
Home Depot is not passing all of the tariff-related price increases on to consumers, the executive added.
"We're not necessarily taking a one-for-one retail with the cost increase. We manage it at the portfolio level," Menear said.
Home Depot is also facing higher transportation and fuel costs that are squeezing the home improvement chain's gross margins, CFO and Executive Vice President Carol Tomé said.
"We expect an expansion of 41 basis points for the year. Last quarter, we expected 44 basis points. So we have factored that. We're doing our best to manage through it, but there's a real issue in the transportation markets in our country," Tomé said.
Overall, Home Depot reported its highest quarterly sales and net earnings in its second quarter, driven by the uptick in seasonal sales that had been lost in the first quarter because of bad weather, Menear said. The company raised its sales growth expectation for the full year as some of the lost sales from the first quarter will likely hit in the second half of the year.
Comparable average ticket price during the second quarter increased 5% year over year to $66.20, and the number of comparable customer transactions increased 3.1% to 455.4 million.
Commodity price inflation — particularly in lumber, building materials and copper — helped drive 119 basis points of average ticket growth, Menear said.
Still, inflation on lumber and copper has dropped in recent weeks, and Home Depot likely will not see the same environment in the second half, Menear said.
Responding to an analyst question, Home Depot executives said they feel positive about macroeconomic trends in the housing market as they relate to customers' willingness to spend money on home improvement.
"In a normal housing environment where there's adequate supply, you see a pretty tight correlation between our comp sales and housing turnover. But now, because we got this housing shortage, it's disconnected," Tomé said.
While overall housing supply is short and turnover is about 4%, about 96% of homeowners are staying in their homes and "don't care" about rising interest rates, Tomé said.
"In fact, they love rising home prices because their equity is worth more. So really, when you think about affordability, it's the 96% of the housing units that are in place that are driving the home spend and not so much the marginal turnover that the media tends to pay attention to," Tomé said.