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Home Depot posts Q1 revenue miss, cuts forecasts as shoppers pull back spending

Home Depot (HD) reported fiscal first quarter 2023 earnings results Tuesday that mostly missed estimates, as consumer spending on home improvement softens compared to during the pandemic boom. Following the report, shares fell more than 4% in pre-market trading.

In the fiscal first quarter of 2023, revenue dropped 4.2% compared with the first quarter last year. While the home-improvement retailer beat on earnings, same-store sales growth came in far lower than expected, down 4.5%, compared with analyst estimates for a fall of 1.42%.

In the release, CEO and President Ted Decker said after a three-year period of "unprecedented growth," the company "expected that fiscal 2023 would be a year of moderation for the home improvement market."

Decker said a few key factors drove sales lower. "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."

Here's what Home Depot reported, compared with Wall Street estimates per Bloomberg:

  • Revenue: $37.3 billion versus $38.34 billion expected

  • Adjusted earnings per share: $3.82 per share versus $3.80 per share expected

  • Same-store sales: down 4.5% versus down 1.42% expected

    • U.S. Same-Store Sales: down 4.6% versus down 2.14% expected

Customer transactions declined 4.8% year-over-year, but came in higher than Wall Street estimates for a drop of 5.36%. Customers also spent less per ticket than expected, up 0.2%, compared with estimates of a rise of 2.63% in average ticket sizes.

In a call with investors, executives said that "big ticket comparable transactions or those over $1,000 were down 6.5% compared to the first quarter of last year." That includes softeness in discretionary items like patio, grills and appliances.

The company also saw "demand soften across other parts of the business, including flooring, kitchen and bath," that could potentially reflect consumers moving from larger to smaller projects.

Extreme weather events in California, like record rain and snow, dampened sales, down 4.6% in the United States. The company said due to this extreme weather there, "You just sort of missed that selling week, so the difference geographically was pronounced in the West, and we just look at that as sort of lost selling weeks."

For fiscal year 2023, Home Depot now expects sales and comparable sales to decline 2% and 5% compared with fiscal 2022. In Q4, its fiscal 2023 guidance expected sales growth to be flat year-over-year. It expects the operating margin rate to be between 14.3% and 14.0% in FY23, slightly lower than the 14.5% previously expected. This comes after the retailer announced an additional $1 billion investment in wage increases, which brought the starting wage in every U.S. market to at least $15 an hour.

CFO Richard McPhail said, “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."

Home Depot also expects diluted earnings per share to drop between 7% and 13% compared to fiscal 2022.

Year-to-date, shares of Home Depot are down nearly 9%, trailing behind the S&P 500 (^GSPC), up nearly 8%. Holding onto gains made during the pandemic, shares compared to March 2020 are up more than 30%.

As of Monday, Wall Street has 23 Buys, 14 Holds and 2 Sells on the stock.

NEW YORK, NEW YORK - FEBRUARY 22: People walk through a Home Depot store parking lot on February 22, 2022 in the Sunset Park neighborhood of the Brooklyn borough in New York City. Home Depot announced on Tuesday that sales grew 11 percent in the fiscal fourth quarter. The company saw challenges of inflation and supply chain bottlenecks as demand decreased during the coronavirus (COVID-19) pandemic. Home Depot projects growth in 2022 with contractors buying lumber, electrical equipment and other supplies.  (Photo by Michael M. Santiago/Getty Images)
NEW YORK, NEW YORK - FEBRUARY 22: People walk through a Home Depot store parking lot on February 22, 2022 in the Sunset Park neighborhood of the Brooklyn borough in New York City. (Photo by Michael M. Santiago/Getty Images) (Michael M. Santiago via Getty Images)

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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