Home Depot warns on sales figures amid revenue miss

Yahoo Finance's Brooke DiPalma joins the Live Show to discuss Home Depot's Q1 earnings amid a softening sales growth due to extreme weather and lumber deflation.

Video Transcript

JULIE HYMAN: This quarter, shares of Home Depot falling in premarket trade, down about 2 and 1/2%, the home improvement retailer hit hard by softening sales growth. Guidance for the year was bleak, as well, to say the least. Yahoo Finance's Brooke DiPalma is joining us now with more of a look at those earnings.

So, really, the company, it's unusual for it to make commentary like this.

BROOKE DIPALMA: Right. Well, I think that the home improvement sector just has such a stark difference than what we saw during the pandemic, and now we're really seeing that to fruition in this latest earnings results. Taking a closer look at the numbers, they mostly miss estimates here, revenue coming in lower than expected at $37.26 billion adjusted, slightly beating their-- adjusted earnings per share, slightly beating at $3.82.

But here are my top three takeaways from the quarter. We saw consumers spending less. CEO and President Ted Decker saying in the earnings release that after a three-year period of what he said was unprecedented growth, the company expected that fiscal 2023 would be a year of moderation for the home improvement market. And customers seem to be going to the store.

Last week saw transactions decline here 4.8% year over year. And they're also buying less big-ticket items-- think less appliances that maybe we saw people bulk up on during the pandemic, less flooring, kitchen, and bath items. Ticket sizes only increase about 0.2%. Also, keep in mind that we saw higher inflation year over year.

But as you can see here, overall sales down 4 and 1/2%-- here in the US specifically, down 4.6%. Those were far lower than what Wall Street analysts anticipated here. What's driving those sales lower? Here's my second takeaway-- lumber deflation. Extreme weather also impacted the quarter.

We saw unfavorable weather, particularly out west, and extreme weather in California. The CEO said, that disproportionately impacted our results. So think less grills being bought and, perhaps, less money spent on patio furniture, as consumers didn't make their way outside, perhaps put off those home improvement projects because of this weather. And ultimately, that led to this, the company updating its fiscal 2023 guidance.

We haven't heard too many companies update their fiscal 2023 guidance given that it only is the first quarter. But Home Depot certainly did here. Based upon the results, the CFO said that they expect continued uncertainty regarding consumer demand, and they now expect comparable sales to decline between 2% and 5% compared to fiscal 2023. Now, previously, in Q4, the company expect sales growth to be flat year over year.

And in addition to that, they also noted that they expect the operating margin rate to be between 14.3% and 14% in fiscal year 2023. That's slightly lower than what they anticipated previously of 14.5%. But you have to keep in mind that earlier this year, the company did announce $1 billion in wage investment. So that also weighing on this guidance as well.

But as you noted earlier, Home Depot shares dropping in premarket here. They dropped as much as 5.5% earlier today.

JULIE HYMAN: Yeah. And the call is starting right now--

BROOKE DIPALMA: Right.

JULIE HYMAN: --so we should get some more color from that. Thank you so much, Brooke. Appreciate it.