Home Depot stock plummets. Here’s why.

Things got worse with steering. Home Depot cut its forecast for fiscal year 2023 and now expects sales to decline between 2% and 5% from 2022, after saying in February that annual sales should be flat year-over-year. The group also cut its earnings per share forecast, and it’s now likely to fall between 7% and 13% year-over-year, down from previous guidance of an average single-digit decline.

“Given the negative impact to first quarter sales from the timber contraction and weather, further softer demand than we expected, and continued uncertainty about consumer demand, we are updating our guidance to reflect a range of potential outcomes,” said Richard MacPhail, the company’s chief financial officer.

Home Depot shares fell 4% 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 as he emerged from his hole on Groundhog Day, and predicted six more weeks of winter. Turns out that prediction was at least accurate enough to turn Home Depot cold
And

which reports first-quarter earnings on Tuesday.

Wall Street expects Home Depot (Stock Ticker: HD) to report adjusted earnings of $3.80 per share, down from last year’s $4.09 per share quarter, estimates data aggregator FactSet. Sales are expected to decline approximately 1.5% year-over-year to $38.3 billion, impacted by a 1.6% decline in same-store sales.

But sentiment is mixed ahead of the earnings report as the home improvement industry weathers macroeconomic turmoil exacerbated by unseasonably cold weather. Home Depot shares are down 9% this year. Warmer weather is stimulating both DIY and professional construction projects.

“We attribute the softer trends in the first quarter more to unusual weather than consumer softening, though both occurred,” TD Cowen analyst Max Rakhlenko wrote in a note to clients. Rakhlenko, which has an outperform rating at Home Depot and a price target of $360, lowered its earnings-per-share estimate to $3.68 a share, well below the consensus figure.

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

Regardless of the weather, Home Depot may also face some challenges from weakness in the housing market, which has been in a bit of a slump over the past few quarters as rising interest and mortgage rates have held back consumer demand. like Barron I mentioned earlier that the spring buying season, which is usually one of the busiest seasons, was slower than normal this year.

While home improvement retailers can still take advantage when people aren’t in the market for a new home, investors worry that recession fears have also discouraged people from undertaking renovation projects.

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

“If HD is experiencing an increasing slowdown, it makes sense to reduce guidance now rather than allow negative review to be the focus of the June meeting,” he wrote in a research note. “But, low evidence would raise the question: What didn’t you expect HD to come of?”

Write to Sabrina Escobar at [email protected]