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Home Depot is Through the Grill Pull Forward, but Facing a New Storm

All last year the whole grill supply chain felt the rubber band effect of pull forward grill sales during the pandemic. It left retailer with too much inventory and manufacturers not seeing any sell through.

Judging by Traeger’s remarks last week and now Home Depot’s today, we’re likely past the effects of grill sales being pulled forward and returning to a normal replenishment cycle on that front. Unfortunately, as we’ve heard from all the manufacturers and now the largest grill retailer today, the grill market moved from one storm to another.

We talked about the COVID and the lap of the COVID is sort of like the giant storm in the hurricane. And for a couple years after you’ve pulled so much demand forward, you suffer from lower sales in those categories. And that’s what we were talking about last year and what Billy [bastek – EVP, Merchandising] was just reviewing this item buying. There was no doubt, grills and riders and patio sets and these big-ticket items were pulled forward.

We’re seeing now that sort of naturally lap, sort of like that hurricane effect lapping. What is newer, and we chatted about this before, is the housing turnover which while historically not a huge driver of demand, it’s steady state demand is housing turnover is fairly steady. But in the last 18-odd months is that has dropped from over 6 million units a year, I think at some run rates in certain months it was even under 4 million.

That dramatic decrease in housing activity is sort of the newer hurricane, if you will. And we don’t see that going much lower. It’s hard to predict. But as Richard said, tough to call the macro but at some point, people will start to lap the interest rates and the lock-in effect. We’ve already seen percentages of houses with mortgages and all the various interest rate strata, the percentage that we’re in that under 3.5% is pastpeak so you’re already starting to see a bit of an unlock there.

Ted Decker – President & CEO of The Home Depot

We’ve talked before about home sales being correlated to grill sales. Intertwined with that is financing activity. With interest rates as high as they are, not only are they depressing home sales, but they are depressing grill sales which are a discretionary purchase and often financed.

And just to add to that, you think about how we’re performing in spite of large projects having seen the pressure. If you just look at debt financing, and you look at some of the statistics around where we’re sitting, HELOC withdrawals or HELOC borrowing is down 23% year-over-year. That’s a Q4 statistic but I think we’re in the same territory in Q1.

In dollars, that’s dropping somewhere from $70 billion-ish a quarter to $50 billion-ish a quarter. And you look at cash-out refinancing it’s down 14% year-over-year and dollars, this peaked around $80 billion and there were $17 billion last quarter and so you’ve just got a significant drop more than 75% from peak to where we are today. And so that’s, to us, interesting context for the fact that transactions have actually begun to recover on a sequential basis. So we’re punching through the environment, but in some respects, as Ted said, the macro has been against us for a little while now. And you could almost say those statistics are stabilizing at least on the bottom.

Richard McPhail – EVP & CFO of The Home Depot

Obviously Home Depot has many products that are impacted more heavily by less HELOC borrowing and cash out refinancing, but it ultimately leads to less discretionary spending. A grill is a big ticket item that is a discretionary purchase.

Home Depot’s remarks about their quarter just adds to the growing chorus that the grill market won’t return to normal until the macro environment improves. Hopefully they’re right that we’re at least stabilizing on the bottom.

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