Home Depot (NYSE:HD) posted earnings for the fiscal first quarter of 2023 on Tuesday that generally missed projections, as consumer spending on house improvement slows compared to the previous boom. Following the release of the report, shares dropped more than 4% in pre-market trading.
Revenue fell 4.2% in the fiscal first quarter of 2023 compared to the same period previous year. While the home improvement company beat on results, same-store sales growth was significantly lower than expected, falling 4.5% below analyst projections of 1.42%.
According to the announcement, after three years of "unprecedented growth," the company "expected that fiscal 2023 would be a year of moderation for the home improvement market."
Decker said that the sales for the quarter fell short of their expectations, owing primarily to lumber deflation and unfavorable weather, particularly in their Western division, where extreme weather in California impacted their results disproportionately.
Here's how Home Depot reported versus Wall Street estimates, according to Bloomberg:
- Revenue: $37.3 billion versus the projected $38.34 billion
- Earnings per share adjusted: $3.82, compared to $3.80 projected
- Same-store sales were down 4.5% versus the predicted 1.42% drop
- Same-store sales in the United States fell 4.6%, compared to the predicted decline of 2.14%
Customer transactions fell 4.8% year on year, however this was greater than the 5.36% dip predicted by Wall Street. Customers also spent 0.2% less per ticket than predicted, contrary to projections of a 2.63% increase in average ticket sizes.
Executives stated in a conference call with investors that "big ticket comparable transactions or those over $1,000 were down 6.5% compared to the first quarter of last year." This includes softness in goods like patio furniture, barbecues, and appliances.
The company also saw "demand softening across other parts of the business, including flooring, kitchen and bath," which could indicate that customers are shifting from larger to smaller projects.
Extreme weather conditions in California, including record rain and snow, affected sales, which fell 4.6% in the US.
Home Depot now predicts revenues and comparable sales to fall 2% and 5% in fiscal 2023, respectively, compared to fiscal 2022. In Q4, their fiscal 2023 projection predicted flat year-over-year sales increase. It anticipates an operating margin rate of 14.3% to 14.0% in FY23, somewhat lower than the 14.5% originally predicted. This comes after the company announced an additional $1 billion investment in wage increases, bringing the starting wage to at least $15 per hour in every U.S. region.
Home Depot also anticipates a 7% to 13% reduction in diluted earnings per share compared to fiscal 2022.
Home Depot shares are down about 9% year to date, behind the S&P 500, which is up roughly 8%. Holding onto gains gained during the pandemic, shares are up more than 30% from March 2020.
Wall Street had 23 Buys, 14 Holds, and 2 Sells on the stock as of Monday.