Home Depot revises full-year guidance after negative first quarter

Home Depot, the world's largest home improvement retailer, reported a decline in both sales and earnings in its first quarter on Tuesday, and lowered its guidance for the full financial year.

The company said sales for the quarter totalled $37.3bn, representing a decrease of 4.2% year-on-year.

Its comparable sales, including both online and in-store sales, experienced a decline of 4.5% for the same period, and within the United States, comparable sales decreased 4.6%.

Net earnings for the first quarter totalled $3.9bn, or $3.82 per diluted share, down from $4.2bn or $4.09 per share in the first three months of the 2022 period.

“After a three-year period of unprecedented growth for our sector, during which we grew sales by over $47bn, we expected that fiscal 2023 would be a year of moderation for the home improvement market,” said Home Depot chair, president and chief executive officer Ted Decker.

“Our sales for the quarter were below our expectations, primarily driven by lumber deflation and unfavourable weather, particularly in our Western division as extreme weather in California disproportionately impacted our results.”

Decker said the company also observed more broad-based pressure across the business compared to when it reported its fourth quarter results several months ago.

“While the near-term environment is uncertain, we remain very positive on the medium-to-long term outlook for home improvement and our ability to grow share in a large and fragmented market.”

Looking ahead, Home Depot revised its guidance downwards for the 2023 financial year , saying it now expected sales and comparable sales to decline between 2% and 5% year-on-year.

The operating margin rate was projected to be between 14.3% and 14.0% - lower than the previous estimate of 14.5%.

Its tax rate for 2023 was anticipated to be about 24.5%, and Home Depot estimated interest expenses to amount to around $1.8bn.

The firm revised its diluted earnings per share decline, projecting it to be between 7% and 13% compared to fiscal 2022, as opposed to its earlier expectations in the mid-single digits.

“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,” said executive vice-president and chief financial officer Richard McPhail.

At 0636 EDT (1136 BST) shares in the Home Depot were down 4.48% in pre-market trading in New York, at $275.62.

Reporting by Josh White for Sharecast.com.