Home Depot Shares Drop On Big Revenue Miss, Forecasts Sales To Further Decline
Home Depot (NYSE: HD) recorded its greatest revenue miss in more than 20 years on Tuesday and dropped its outlook for this year, as consumers postpone huge renovations and buy fewer big-ticket products like patio sets and grills.
The retailer giant reported $37.26 billion in net sales for fiscal Q1 2023, down from Q1 2022’s $38.91 billion. The topline figure also missed the street expectations of $38.28 billion.
“After a three-year period of unprecedented growth for our sector, during which we grew sales by over $47 billion, we expected that fiscal 2023 would be a year of moderation for the home improvement market. Our sales for the quarter were below our expectations primarily driven by lumber deflation and unfavorable weather, particularly in our Western division as extreme weather in California disproportionately impacted our results,” said CEO Ted Decker.
Net earnings were $3.9 billion, or $3.82 per diluted share, in the first quarter of fiscal 2023, compared to net earnings of $4.2 billion, or $4.09 per diluted share, in the same period of fiscal 2022. The figure beat the estimated $3.80 earnings per share.
Home Depot fell short of Wall Street’s revenue projections for the second quarter in a row. For the first time since November 2019, before the pandemic, the firm fell short of analysts’ forecasts in the fourth quarter.
“The state of the homeowner is that they’re very healthy,” CFO Richard McPhail said. “They have healthy balance sheets. They have healthy incomes. But I do think — and our professional customers tell us they hear this from their customers — there is that shift, even if it’s temporary from larger projects into smaller ones.”
Home Depot stock closed Tuesday at $282.33, down from its 52-week high of $347.25. The company’s shares have dropped roughly 7% so far this year. This behind the S&P 500 index’s 8% gain and the retail-focused XRT’s 1% growth.
Comparable sales dipped 4.5% in the first quarter, and 4.6% in the United States. According to McPhail, lumber deflation accounted for more than 2 percentage points of the drop. Sales trends were better among do-it-yourself clients than among house professionals, although both groups’ revenues declined year over year, Decker added during the earnings call.
Customer transactions fell about 5% year on year in the third quarter, although the average ticket of $91.92 remained roughly steady.
Lumber prices have fallen, but inflation is still driving up the cost of other products, according to Decker on the investor call. Colder and wetter conditions in California and the western United States this spring contributed to lower-than-expected quarterly performance, he added.
The company now forecasts sales and comparable sales to fall between 2% and 5% this fiscal year. It had earlier estimated that sales would be roughly flat for the period.
“Given the negative impact to first quarter sales from lumber deflation and weather, further softening of demand relative to our expectations, and continued uncertainty regarding consumer demand, we are updating our guidance to reflect a range of potential outcomes,” McPhail said.
Its operating margin rate for the year is also likely to be lower, in the range of 14% to 14.3%, compared to a previously expected 14.5%, including the effect of a $1 billion investment in staff pay.
The retailer also expects diluted earnings-per-share to fall between 7% and 13% in fiscal 2022.
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