Home Depot’s revenue during the first quarter fell short of expectations and the company on Tuesday cut its annual sales forecast and projected a decline in profit for the first time since 2009.
Shares of the nation’s largest home improvement chain tumbled about 4 percent, while those in rival Lowe’s dropped nearly 3 percent.
For the three months that ended April 30, revenue dropped to $37.26 billion from last year’s $38.91 billion, and it was short of the $38.45 billion projected by analysts polled by Zacks Investment Research.
The retailer previously benefited from a rise in home-improvement projects that were popular during the COVID-19 pandemic.
“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,” Home Depot CEO Ted Decker said in a statement.
Decker said weak sales were mostly due to lumber deflation and bad weather, particularly in its Western division which had to contend with extreme weather in California.
The Atlanta company cut its expectations for the year as Americans cut back spending on remodeling their living spaces, with the economy slowing and costs rising for builders and homeowners.
“What was newer in our observations this quarter is that while projects are still strong and [professional] project backlog is still elevated, the size of the projects are getting a bit smaller,” said Decker in an earnings call on Tuesday. “And it could be that the projects are being deferred or it could be that the project is being broken up into chunks. So, rather than do an entire room or an entire basement, you start working the way at it in smaller chunks. And that clearly impacts items per basket in overall activity.”
Demand was weak for discretionary items like patio furniture and grills, as well as appliances, flooring, kitchen, and bath, said William Bastek, executive vice president of merchandising at Home Depot.
“The U.S. consumer is a little bit more uncertain than they were a few months ago. And I think that’s going to be a common theme for what we hear from the other retailers,” Truist Securities analyst Scot Ciccarelli said.
Home Depot now expects fiscal 2023 comparable sales to fall between 2 percent and 5 percent, compared to its prior outlook for nearly flat sales. Analysts were expecting a 0.9 percent decline, according to Refinitiv IBES data.
The company forecast earnings per share to decline between 7 percent and 13 percent, compared to a mid-single digits drop estimated previously, even as it posted a quarterly profit of $3.82 per share, above estimates of $3.80.
“You can argue that people are tired of spending on the house, they want experiences, they want to go out they want to do other things, they don’t want to fix up the house according to Home Depot, because they had horrendous earnings,” said Ken Polcari, managing partner at Kace Capital Advisors in Boca Raton, Florida.
The U.S. Federal Reserve has hiked benchmark interest rates 10 consecutive times with hopes of slowing the economy and cooling inflation.
The U.S. economy slowed sharply from January through March, decelerating to just a 1.1 percent annual pace as higher interest rates hammered the housing market and businesses reduced their inventories. An estimate from the Commerce Department last month showed that the nation’s gross domestic product—the broadest gauge of economic output—weakened after growing 3.2 percent from July through September and 2.6 percent from October through December.
The Associated Press and Reuters contributed to this report.
