Home Depot earnings fell vs. a year earlier for the first time in three years, as the Dow Jones home improvement retailer missed first-quarter revenue estimates Tuesday and guided lower for the full year. Other signs of retail trouble gathered as Target and other major retailers reported mixed reports Wednesday.
During the thick of the coronavirus pandemic, home improvement retailers turned out to be winners. More recently, they found favor as defensive plays amid inflation and global recession fears. In the early part of 2023, Home Depot stock rallied along with other housing-related plays as mortgage rates came off highs.
However, Home Depot's Q1 financials could spell trouble for retailers as consumers look to be more cautious with funds amid recession fears. Following HD, Target reported its April quarter early Wednesday, beating profit expectations on sales growth of less than 1% and flat same-store sales. It also gave a cautious outlook, saying consumers continue to cut back on discretionary items and spend more on essentials.
In another big retail report, TJX, the parent of T.J. Maxx and other chains, missed sales estimates. Walmart financials are due Thursday and then Home Depot-home improvement retailer rival Lowe's reports next week.
All of that followed a weaker-than-expected April retail sales data from the Commerce Department on Monday. Sales rose 0.4% for the month, half of what was expected. That is a maybe a positive sign that inflation could be slowing, but also that consumers are turning more cautious, and spending less.
HD shares shot up 3.6% to 292.39 in Wednesday's market trade. On Tuesday Home Depot stock sank more than 2%. The Dow Jones stock stock is above its 50-day line but well below the 200-day line. Target jumped 2.6% while TJX edged up 0.9%.
Lowe's stock advanced 4% while Dow Jones stock Walmart dropped 0.17%.
Home Depot Stock: Earnings
Estimates: Wall Street predicted Home Depot earnings would fall 7% to $3.80 per share in Q1. Analysts expected revenue down 1% to $38.31 billion. Same-store sales were seen off drop 1.6%.
Results: Home Depot reported EPS dropping 6.6% to $3.82 as sales fell 4% to $37.26 billion. Same-store sales decreased 4.5%, as comparable sales in the U.S. declined 4.6%.
"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 said Tuesday in a statement.
Outlook: Home Depot also revised its 2023 guidance based on "continued uncertainty regarding consumer demand." The home improvement retailer expects revenue and same-store sales to decrease 2% and 5%, respectively, compared to fiscal 2022. Home Depot executives also forecast diluted earnings per share dropping between 7%-13% in 2023.
The Dow Jones stock previously guided EPS to decline in the mid-single digits. In February, it guided for flat sales and comparable-sales growth. Meanwhile, analyst consensus is for Home Depot earnings per share declining 5% to $15.72 per share with sales off 1% to $156.29 billion.
In late February, Home Depot turned in mixed fourth-quarter financial results. The Dow Jones stock posted earnings per share of $3.30 vs. FactSet consensus for $3.28. It reported revenue of $35.83 billion vs. $35.97 billion expected.
Year over year, Home Depot Q4 earnings rose 2.8% and revenue edged up 0.3%. That marked the second consecutive quarter of slowing profit and sales growth.
The Dow Jones stock ranks sixth in IBD's Wholesale-Building Products industry group. Home Depot stock has a 64 Composite Rating out of 99. HD also has a 39 Relative Strength Rating. The EPS Rating for the Dow Jones stock is 81 out of 99.
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Dow Jones Stock Home Depot Rival Lowe's Is On Deck
Lowe's follows Dow Jones giant Home Depot late on May 23. Wall Street forecasts Lowe's earnings per share dipping 2% to $3.44 with revenue sliding 8% to $21.64 billion.
On March 1, Lowe's reported Q4 earnings accelerating for the third quarter in a row, jumping 28% to $2.28 per share as revenue climbed 5.2% to $22.445 billion.
The adjusted earnings results excluded pretax transaction costs associated with selling its Canadian retail business, after offloading it to private-equity firm Sycamore Partners for $400 million in cash in November. Lowe's comparable sales fell 1.5% for the fourth quarter while U.S. comparable sales dipped 0.7%. FactSet projected flat growth year-over-year.
For fiscal 2023, Lowe's forecasts earnings to range from $13.60 to $14 per share on $88 billion to $90 billion in total sales. For full-year 2022, Lowe's earnings were $13.76 per share on $97 billion in sales. Management expects slower foot traffic to continue throughout the year. The home retailer sees comparable sales being flat to down 2% year-over-year.
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