Home Depot Stock Is Tumbling. Here’s Why.

It got worse with the guide. Home Depot lowered its outlook for fiscal 2023, now expecting sales to fall between 2% and 5% from 2022, having said in February that annual sales should be flat year over year. The group also cut its outlook for earnings per share, now likely to slide between 7% and 13% on an annual basis, down from previous guidance of a mid-single digit decline.

“Given the negative impact on first-quarter sales from wood deflation and weather, further softening of demand relative to our expectations, and continued uncertainty about consumer demand, in- we update our guidance to reflect a range of potential outcomes,” said Richard McPhail, the company’s chief financial officer.

Home Depot shares were down 4.3% in premarket trading.

This is breaking news. Read a preview of Home Depot’s earnings below and check back for more analysis soon.

Punxsutawney Phil saw his shadow when he emerged from his burrow this Groundhog Day, predicting six more weeks of winter. Turns out the prediction was at least accurate enough to chill Home Depot
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which reports first-quarter earnings on Tuesday.

Wall Street expects Home Depot (ticker: HD) to post adjusted earnings of $3.80 per share, down from the previous quarter’s $4.09 per share, according to consensus estimates from data aggregator FactSet. Sales are expected to decline about 1.5% from a year ago to $38.3 billion, dragged down by a 1.6% decline in same-store sales.

But sentiment was mixed ahead of the earnings report as the home improvement industry navigated macroeconomic turbulence exacerbated by all the unseasonably cold weather. Shares of Home Depot are down 9% this year. Warmer weather helps spur both do-it-yourself and professional construction projects.

“We attribute softer 1Q trends to untimely timing rather than consumer softening, although both occurred,” TD Cowen analyst Max Rakhlenko wrote in a note to clients. Rakhlenko, who has an Outperform rating on Home Depot and a $360 price target, lowered his earnings per share estimates to $3.68 per share, below the consensus figure.

The season has been a thorn in the side of similar companies that have already reported earnings, including Tractor Supply Co. (TSCO) and Sherwin-Williams (SHW). In an earnings call with analysts, Tractor Supply said the bad weather caused a 2 percent decline in comparable store sales. Granted, Tractor Supply’s core business leans heavily toward agriculture—which is heavily dependent on the weather—but the company’s results are often a “decent read through” for home improvement retailers like Home Depot and Lowe’s. , said Raymond James analyst Bobby Griffin. Griffin has a Market Perform rating, but no price target.

Aside from the weather, Home Depot could also face some challenges from softness in the housing market, which has fallen somewhat over the past few quarters as rising interest and mortgage rates dampen consumer demand. Count to Barron previously reported, the spring buying season, usually one of the busiest, was slower than usual this year.

While home improvement retailers may still benefit when people aren’t in the market for a new home, investors worry that recession fears have also discouraged those person to undertake renovation projects.

For Morgan Stanley analyst Simeon Gutman, the bigger question is whether Home Depot will repeat or lower its full-year guidance before its investor conference in June. Currently, the company predicts that full-year same-store sales will be flat. The analyst has an Overweight rating and a $340 price target.

“If HD sees incremental deceleration, it makes sense to lower guidance now rather than allow a negative revision to be the focus of the June meeting,” he wrote in a research note. “But, a lowered guide raises the question: what did HD not see coming?”

Write to Sabrina Escobar at sabrina.escobar@barrons.com