Home Depot reported its biggest revenue miss in more than 20 years and lowered its forecast for the year, as consumers delay big projects and buy fewer big-ticket items like patio sets and grills.
The home improvement retailer said cold weather and falling lumber prices also hurt fiscal first-quarter sales. Its last quarterly miss of this magnitude was in November 2002.
The company said it now expects sales and comparable sales to decline between 2% and 5% for the fiscal year. It had previously predicted roughly flat sales for the period. Its operating margin rate is also expected to come in lower for the year, in a range of between 14% and 14.3% compared with a previously expected 14.5%, including the effect of a $1 billion investment in employee wages.
Home Depot shares fell on the news.
Chief Financial Officer Richard McPhail told CNBC that Home Depot anticipated 2023 would be a year of moderation, after Americans’ huge appetite for home improvement during the pandemic. Yet he said that has been compounded by rising mortgage rates and a shift toward spending on services.
“The state of the homeowner is that they’re very healthy,” he 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.”
Here’s what the retailer reported for the three-month period that ended April 30, compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:
- Earnings per share: $3.82 vs. $3.80 expected
- Revenue: $37.26 billion vs. $38.28 billion expected
Home Depot reported fiscal first-quarter net income of $3.87 billion, or $3.82 per share, down from $4.23 billion, or $4.09 per share, a year earlier.
It marked the second quarter in a row that Home Depot missed Wall Street’s revenue expectations. Last quarter, the company fell short of analysts’ expectations for the first time since November 2019, before the Covid pandemic.
Comparable sales for the first quarter fell 4.5%, and dropped 4.6% in the U.S. McPhail said lumber deflation accounted for over two percentage points of that decrease.
Spring is the holiday season of the home improvement industry. It marks a major quarter for sales to do-it-yourself customers and professionals who typically seize upon the warmer and milder weather by gardening and taking on other projects.
Yet Home Depot and its competitors now face more unpredictable outlook. Rising interest rates threaten to dampen the appetite of prospective home buyers and cool home values. Groceries and essentials now take a bigger bite out of households’ budgets. And with Covid largely in the rearview mirror, Americans now weigh spending on travel, dining out and other experiences when they debate a kitchen renovation or a new appliance.
This spring, weather has hurt sales, too, McPhail said. Colder and wetter conditions in California and the western U.S. contributed to lower than expected quarterly results, he said.
Even so, McPhail said Home Depot has some factors that work in its favor. Housing supply in the U.S. remains low and is aging, dynamics that will continue to prop up home improvement demand.
Shares of Home Depot closed Monday at $288.54, down about 17% from its 52-week high of $347.25. So far this year, the company’s stock is down nearly 9%. That trails the approximately 8% gain of the S&P 500 index and the 1% gain of the retail-focused XRT.
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