In its last quarterly earnings report, Home Depot (NYSE:HD) forecast flat sales and lower profits for 2023, partly because consumers aren’t spending as much on home improvement products as they did during the pandemic, a boon period for the sector. Another hit to its bottom line, the company predicted, was the decision to invest $1 billion this year to increase hourly wages for every one of its frontline workers.
Giving pay raises at the same time sales are slumping seems like an incongruous strategy, but Home Depot executives project that it will actually boost the big-box retailer’s industry-leading position. “We plan to continue to capture market share,” CFO Richard McPhail told analysts during the February earnings call. One reason, he said, is “the unique advantage that our orange-blooded associates give us over our competition,” alluding to Home Depot’s signature color and the terms for its frontline employees.
Irrespective of Home Depot’s strong track record on Wall Street, Morgan Stanley analyst Simeon Gutman said he was somewhat surprised by the $1-billion outlay. “The investment community largely thought Home Depot was already in prime position in terms of wage rates,” he said, noting a series of pay increases in recent years. And the fact that the company is anticipating less-than-rosy sales this year was another eyebrow-raiser. “The [home improvement] the environment seems to be weakening, not accelerating, and therefore incremental wage investments at this time would open the door to more questions and surprises. But if you look at Home Depot over multiple years, you’re okay with it.”
HD shares dipped $2.05 to $298.49.