{"id":9603,"date":"2023-05-16T17:13:06","date_gmt":"2023-05-16T21:13:06","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/home-depots-earnings-beat-estimates-why-the-stock-is-falling\/"},"modified":"2023-05-16T17:13:07","modified_gmt":"2023-05-16T21:13:07","slug":"home-depots-earnings-beat-estimates-why-the-stock-is-falling","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=9603","title":{"rendered":"Home Depot\u2019s Earnings Beat Estimates. Why the Stock Is Falling."},"content":{"rendered":"

It isn\u2019t just the weather. Consumers are pulling back from home improvement.<\/p>\n

Softening customer demand has pushed
\n Home Depot
\n to slash its outlook for the fiscal year, a move that has sent shares in the home-improvement retailer tumbling and knocked the
\n Dow Jones Industrial Average
\n lower.<\/p>\n

\n

Home Depot (ticker: HD) reported earnings of $3.82 a share in the first three months of the year, slightly ahead of the $3.80 expected by analysts surveyed by FactSet. But quarterly sales of $37.8 billion were short of estimates of $38.3 billion, which the company blamed on declining lumber prices and unfavorable weather.<\/p>\n

It got worse with the financial forecasts. Home Depot is now projecting sales will fall 2% to 5% from 2022, while it said in February that yearly sales should be flat year over year. It also cut earnings-per-share guidance, saying they are likely to slide 7% to 13% on an annual basis, compared with a previous call for a decline in the mid single digits.<\/p>\n

\u201cGiven 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,\u201d said Richard McPhail, Home Depot\u2019s chief financial officer.<\/p>\n

Barron\u2019s <\/em>noted previously that lower lumber prices, which had spiked during the pandemic, were likely to weigh on same-store sales. Nonetheless, the 4.5% tumble in comparable sales was worse than the 1.6% fall analysts expected. It represents the largest quarterly decline in more than a decade, reflecting both lumber prices and lower demand.<\/p>\n

The company\u2019s decision to cut its fiscal 2023 forecast so early in the year may be prudent, but it has also spooked investors who were hoping\u2014too optimistically\u2014that more recent trends would show consumers had simply postponed home-improvement projects during a wet and stormy spring. The more-conservative outlook implies that isn\u2019t happening.<\/p>\n

\u201cWe believe investors were bracing for a weaker first-quarter print, but also indications of rebounding trends into mid-May,\u201d wrote MKM Roth analyst David Bellinger. \u201cThis morning\u2019s full-year guide down indicates to us that any acceleration second quarter-to-date has not been enough to instill confidence into the back half amid \u2018broad-based pressures\u2019 across the business.\u201d<\/p>\n

Shares of Home Depot, a component of the Dow, slipped 1.5% to $284.37 in early trading, while the market benchmark was down 0.5%. Home Depot stock had shed nearly 9% this year as of Monday\u2019s close.<\/p>\n

Therefore Mother Nature isn\u2019t entirely to blame, but isn\u2019t helping either. Weather has been a major factor complicating business for the home-improvement industry, which already was navigating a slowing economy macroeconomic turbulence now being made worse by unseasonably cold conditions. Warmer weather helps spur both do-it-yourself and professional construction projects.<\/p>\n

Weather has been a thorn in the side of similar companies, including
\n Tractor Supply
\n (TSCO) and
\n Sherwin-Williams
\n (SHW). Tractor Supply said poor weather caused a two-percentage-point decline in comparable-store sales. Its core business leans more toward agriculture\u2014an area even more weather-dependent than home improvement\u2014but the company\u2019s results are often a \u201cdecent read through\u201d for companies such as Home Depot and
\n Lowe\u2019s
\n (LOW), said Raymond James analyst Bobby Griffin.<\/p>\n

Lowe\u2019s stock dropped 1.9% in early trading. \u201cWe expect Lowe\u2019s will see a similar headwind from lumber deflation as Home Depot,\u201d said Jonathan Matuszewski, an analyst at Jefferies.<\/p>\n

Weather aside, Home Depot also faces some challenges from the housing market, which has been in a bit of a slump over the past few quarters as rising interest and mortgage rates hinder demand. As Barron\u2019s<\/em> has reported, the spring home-buying season, which is typically one of the busiest, has been slower than usual this year.<\/p>\n

Home-improvement retailers can still benefit when people aren\u2019t in the market for a new home. The concern for investors is that worry about a recession, along the cost of financing big-ticket remodeling plans, has also discouraged people from undertaking renovation projects.<\/p>\n

Indeed, the results demonstrate that consumers are feeling pinched. On its conference call, Home Depot noted that business from both do-it-yourself and professionals were down in the quarter, with shoppers shying away from expensive discretionary purchases. In addition, while Pros still have elevated backlogs relative to history, those backlogs have shrunk since last year, and their projects are shifting away from big remodels to more modest upgrades. <\/p>\n

Gross margins were also lower in the quarter, hurt by \u201cshrink,\u201d an industry term for inventory loss, including shoplifting, which plenty of other retailers have also cited as a headwind in recent months.<\/p>\n

Nevertheless, management is upbeat. \u201cWhile 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,\u201d said Ted Decker, Home Depot\u2019s chairman and CEO.<\/p>\n

Write to Jack Denton at jack.denton@barrons.com, Teresa Rivas at teresa.rivas@barrons.com, and Sabrina Escobar at sabrina.escobar@barrons.com<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

It isn\u2019t just the weather. Consumers are pulling back from home improvement. Softening customer demand has pushed Home Depot to slash its outlook for the fiscal year, a move that has sent shares in the home-improvement retailer tumbling and knocked the Dow Jones Industrial Average lower. Home Depot (ticker: HD) reported earnings of $3.82 a […]<\/p>\n","protected":false},"author":1,"featured_media":9604,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-9603","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nHome Depot\u2019s Earnings Beat Estimates. Why the Stock Is Falling. | iFintechWorld<\/title>\n<meta name=\"description\" content=\"It isn\u2019t just the weather. 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