Home Depot (HD) earnings for the first quarter of 2023

A customer walks into a Home Depot store on August 16, 2022 in San Rafael, California.

Justin Sullivan | Getty Images

Home Depot reported its biggest revenue loss in more than 20 years and lowered its forecast for the year as consumers delay large projects and buy fewer expensive items like patio sets and grills.

A home improvement retailer said cold weather and lower lumber prices also hurt its fiscal first-quarter sales. Its last quarterly loss of this magnitude was in November 2002.

Shares fell about 5% in pre-market trading.

The company said it now expects sales and similar sales to decline between 2% and 5% for the fiscal year. It had previously projected nearly flat sales for the period. Operating margin rate for the year is also expected to decline, in a range of 14% to 14.3% compared to 14.5% previously forecast, including the impact of the $1 billion investment in employee payroll.

Chief Financial Officer Richard MacPhail told CNBC that The Home Depot projected 2023 would be a year of moderation, following Americans’ huge appetite for home improvement during the pandemic. The retailer’s annual sales have grown by about $47 billion in the past three years. However, he said the expected downturn was exacerbated by higher mortgage rates and a shift toward spending on services.

“The condition of the homeowner is that they are healthy,” he said. “They have good budgets. They have a healthy income. But I think—and our professional clients tell us they hear this from their clients—there is this shift, even if it’s temporary, from larger projects to smaller projects.”

Here’s what the retailer reported for the three-month period ended April 30, compared to what Wall Street was expecting, based on a Refinitiv survey of analysts:

• Earnings per share: $3.82 vs. $3.80 expected
• Revenue: $37.26 billion, compared to the expected $38.28 billion

Home Depot reported fiscal first-quarter net income of $3.87 billion, or $3.82 per share, down from $4.23 billion, or $4.09 per share, a year earlier.

The second quarter in a row saw Home Depot miss Wall Street’s revenue forecasts. In the most recent quarter, the company fell short of analyst expectations for the first time since November 2019, before the Covid pandemic.

Comparable sales for the first quarter were down 4.5%, down 4.6% in the US, and McPhail said lumber shrinkage accounted for 2 percentage points of that decline.

Spring is the holiday season in the home improvement industry. It represents a key quarter of sales to clients and do-it-yourself professionals who typically take advantage of the warmer, milder weather by gardening and doing other projects.

However, Home Depot and its competitors are now confronted The most unpredictable look. Rising interest rates threaten to dampen the appetite of potential homebuyers and cool home values. Groceries and essentials now take up a larger portion of household budgets. And with Covid largely in the rearview mirror, Americans now weigh spending on travel, dining out, and other experiences when they discuss a kitchen renovation or a new refrigerator.

He said this spring and cooler, wetter conditions in California and the western US contributed to lower-than-expected quarterly results.

In the first quarter, Home Depot sold lower-priced discretionary items, such as new appliances, MacPhail said. He said customers may be putting off these purchases or may have already made them during the pandemic. He added that demand has softened on floors, kitchens and bathrooms as well.

Still, MacPhail said Home Depot has a few factors working in its favor. US housing supply remains low and aging, dynamics that will continue to support home improvement demand. He said sales grew year-on-year in some categories, including building materials, hardware, plumbing and millwork, reflecting that people are still investing in their homes.

“Once we get through this period, we believe the medium- and long-term fundamentals for home improvement are strong,” he said.

Home Depot shares closed Monday at $288.54, down about 17% from a 52-week high of $347.25. So far this year, the company’s stock is down nearly 9%. That tracks a roughly 8% gain for the S&P 500 and a 1% gain for the retail-focused XRT.

CNBC Robert Hmm Contribute to this report.

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