Home Depot Cites Unexpectedly Weak Demand for Its Huge Earnings Miss

May 16, 2023

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6:56 pm

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39 comments

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Economics

Home Depot daily chart courtesy of StockCharts.Com

Please consider Home Depot’s First Quarter Fiscal 2023 Results and 2023 Guidance.

Key Points

Sales were $37.3 billion for the first quarter of fiscal 2023, a decrease of 4.2% from the first quarter of fiscal 2022.
Comparable sales for the first quarter of fiscal 2023 decreased 4.5%, and comparable sales in the U.S. decreased 4.6%.
Net earnings for the first quarter of fiscal 2023 were $3.9 billion, or $3.82 per diluted share, compared with net earnings of $4.2 billion, or $4.09 per diluted share, in the same period of fiscal 2022.

“Our sales for the quarter were below our expectations primarily driven by lumber deflation and unfavorable weather, particularly in our Western division as extreme weather in California disproportionately impacted our results,” said Ted Decker, chair, president and CEO.

Guidance Was Even Worse

“Given 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,” said Richard McPhail, executive vice president and chief financial officer.

Home Depot Fiscal 2023 Guidance

Sales and comparable sales to decline between 2% and 5% compared to fiscal 2022
Operating margin rate to be between 14.3% and 14.0%
Tax rate of approximately 24.5%
Interest expense of approximately $1.8 billion
Diluted earnings-per-share-percent-decline between 7% and 13% compared to fiscal 2022

That would be the first annual decline since the Great Recession in 2009.

Weekly Chart

The daily chart shows dip buyers are out today. The weekly chart is more interesting with unfilled gaps above and below.

Ultimately, I expect that lower gap to fill.

Support levels are at 260, 230, and other areas marked by dotted lines.

The key point for now is that US consumers threw in the towel on home improvements.

Inflation, consumer sentiment, and Fed rate hikes are starting to bite.

Retail Sales Rise in April but Price Inflation Accounts for All of the Increase

*Advance retail sales from Commerce Department, real (inflation-adjusted) calculation by Mish*

Earlier today I noted Retail Sales Rise in April but Price Inflation Accounts for All of the Increase

Inflation Adjusted Retail Sales Last Six Months

November: -1.5 Percent
December: -0.8 Percent
January: +2.3 Percent
February: -1.1 Percent
March: -0.8 Percent
April: + 0.0 Percent

Consumers have to spend more money just to buy the same amount of goods and services as last month.

Real retail sales peaked a year ago, and that’s what drives GDP.

Widespread talk of a robust consumer is nonsense. And they just threw in the towel on home upgrades.

This post originated at MishTalk.Com

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Another Heavily Revised Housing Starts Joke of a Report for May 2023 – Energy Partner Network

2 years ago

[…] This post originated at MishTalk.Com […]

Another Heavily Revised Housing Starts Joke of a Report for May 2023 – MishTalk

2 years ago

[…] This post originated at MishTalk.Com […]

EndTheFed

2 years ago

As I write this, HD is up almost 4%, erasing all of yesterday’s losses and then some. This stock market is resilient unlike anything I’ve seen in 25 years of investing. I wouldn’t short it with a ten-foot pole.

ohno

2 years ago

Reply to EndTheFed

Yep. And no surprise whatsoever.

RonJ

2 years ago

Last night, The Maverick of Wall Street was talking about this as part of a focus on the consumer. Wages are not keeping up with inflation, credit card interest is rising, car buyers are underwater on loans, with delinquencies rising. ETC. Not a pretty picture.

MPO45v2

2 years ago

Well Target’s earnings weren’t the economic apocalypse just dark stormy clouds but the next couple of quarters may get gloom and doom.

https://finance.yahoo.com/news/target-earnings-stock-company-warns-consumer-103018480.html

Cabreado

2 years ago

Everybody stuck at home for the “pandemic” drove lots of home improvement projects…

everybody “stuck at home” in the greatest housing bubble of all time is a whole ‘nother story.

Avery

2 years ago

That’s another woke China-Mart. They can drop dead.

Felix_Mish

2 years ago

How much of this HD report is Amazon? I sure use Prime to save trips to HD.

billybobjr mentioned also using UPS and Fedex as barometers. Gotta remember Amazon is the new UPS. Anyone else see more Amazon delivery trucks than all the other guys?

Anyway, in areas I’m familiar with, HD supplies contractors. How many of them are going around HD these days?

TexasTim65

2 years ago

Reply to Felix_Mish

You can order a lot of things at Amazon and some of them are even a better price (but not everything because Amazon is no longer automatically the cheapest because a lot of their 3rd party sellers cost more than other discounters).

But there is no way you can order lumber, bricks, stone, mulch, dirt etc via Prime in any kind of quantity. That’s why contractors go there.

KidHorn

2 years ago

Reply to Felix_Mish

Contractors care more about materials being available when needed than cost. Labor is their biggest expense and they try to avoid needing extra labor days more than anything.

I do agree that many things sold at HD are also available from amazon. Sometimes even it costs a little more, I’ll get it from amazon to avoid visiting HD.

dtj

2 years ago

Multiple choice question:

Which of the following are “sound and resilient”?

A. The banks

B. Consumers

C. Janet Yellen

D. none of the above

RunnerDan

2 years ago

Reply to dtj

Unfortunately, the unsound are resilient at leaching off the ever dwindling sound.

8dots

2 years ago

The renovation bubble is behind us. Consumer spending : from the millions –> to the six figures –> to the thousands –> to the crumbs.

billybobjr

2 years ago

Reply to 8dots

Kind of agree . HD is a excellent company to gauge economic activity as is the package carriers like UPS and fedex when they

all start to go south then we are probably headed down.

KidHorn

2 years ago

Reply to 8dots

A lot of it is because people are moving less. They have a good mortgage rate and want to keep the good rate. Less money spent fixing up the home for sale.

PapaDave

2 years ago

Going forward, I expect more companies to issue statements about how extreme weather impacts their operations. For Home Depot it was affected by extreme weather in California. Currently unprecedented early bush fires in western Canada are affecting oil and gas output there. Of course, these extreme weather problems will provide more opportunities for investors to take advantage of.

billybobjr

2 years ago

Reply to PapaDave

Hahahahahaha, Yea , Climate change was the reason HD s earnings were off . How about the much

milder winter that was in the eastern 2/3 of the country ? You are losing it , you may want to go

re watch some Al Gore speaches from 20 years ago but that is funny stuff .

worleyeoe

2 years ago

Reply to billybobjr

Dude,

PapaDave doesn’t care if you think climate change is real or not. He’s an investor, not a climate scientist, and probably a damn good one at that.

Rbm

2 years ago

Reply to PapaDave

Or you could look at it like business is returning to normal. Past hurricanes wildfires and such drove up demands. Hard sayin

PapaDave

2 years ago

Reply to Rbm

Hardly business as usual. Extreme weather events are increasing in both frequency and severity. As a result, you will be hearing more of the following terms in the future, none of which you heard of 20 years ago, to describe these extreme events; bomb cyclone, atmospheric river, thermal inversion, heat dome, wet bulb deaths.

As always; I can’t change what is happening, but I can at least recognize it and then try to profit from it. Which is far better than pretending it isn’t happening like some of the morons here.

Zardoz

2 years ago

Reply to PapaDave

Cultists gonna cult.

RonJ

2 years ago

Reply to Zardoz

The climate cult.

RonJ

2 years ago

Reply to PapaDave

Atmospheric river is a new term, describing a long existing weather phenomenon. It used to be commonly called the Pineapple Express, an atmospheric river that moved moist air from near Hawaii, up into California. We have extreme weather every year here in California. Dry season and wet season. El Nino and La Nina cause a constant extreme weather pattern here. In 1977, when i moved to CA, Lorne Green was on public service ads, exhorting people to conserve water.

No one was talking about Global Warming at that time. The public is being played.

JackWebb

2 years ago

Reply to RonJ

To be fair and factual, as much as I am skeptical of weather excuses, this past winter was severe in California. How much of the miss was caused by it is also a fair question.

Call_Me

2 years ago

Reply to PapaDave

The ‘extreme events’ you reference have been known and existed in the past, but the attention-grabbing names (sometimes due to rebranding) have been regularly placed in the headlines these days.

‘Bombogenesis’ or a mid-latitude cyclone bombing out is simply a drop in central pressure of 12 mb in 12 hr or 24 mb in 24 hr. There is no evidence they are happening with greater frequency in 2023, but the attention-grabbing term ‘bomb cyclone’ sure has grown more prevalent. Improved satellite technology has made them much easier to document than a generation or two ago.

A thermal inversion isn’t anything extreme. In fact, it happens nearly every night in your neighborhood as the boundary layer decouples from the free troposphere. Perhaps there is a different meaning to the term that I am unaware of?

Heat dome? Can’t speak to whether or not there has been a frequency change (from a scientific measurement standpoint), but there certainly has been a marked uptick in headlines to the detriment of the old-fashioned ‘heat wave’.

Atmospheric River events are poorly understood, but may be preferentially driven by particular global circulations (at least is my limited understanding). They are certainly impressive events that are worth learning more about if one wants to profit off high-impact weather events. Here is a recent summary of one paper looking at modeling the phenomenon-

https://cpo.noaa.gov/News/ArtMID/7875/ArticleID/2666/Improved-Simulations-of-Atmospheric-River-Climatology-and-Variability-in-High-Resolution-CESM

‘Wet bulb deaths’? Another headline-grabbing term. You didn’t hear about it 20 years ago because it was called heat stroke. The planet is closing in on 2 billion more people than the year 2000 and most of them are not living in polar locations so you’re going to have substantial increases in affected persons based solely on that.

I’m old enough to remember a time when abnormally cold stretches during the winter were referred to as Arctic air mass as opposed to today’s dreaded Polar Vortex. I write this in exasperation of the sensationalizing of everything to get clicks/attention/funding, but also to get more people to perceive the hype and not give it its due. Talk about something, but don’t get caught up in trendy terms in lieu of fundamental knowledge.

Call_Me_Al

Jojo

2 years ago

They have raised prices too much.

I swung by to look at getting some plants for my garden a few weeks back. HD & Lowes both want $5.98 or higher for one stinking 4″ tomato, pepper or cucumber plant (they seem to be running a sale with 3 plants for $12 now). I went over to the local Grocery Outlet and paid $2.49/each.

But prices are similarly high for most everything else in these stores.

TexasTim65

2 years ago

Reply to Jojo

I had the same experience at my local growers outlet. The plants there were much nicer than the Home Depot ones too.

I try to save some seeds now from my plants and plant the seeds first and if they sprout I don’t need to buy any plants at all.

Call_Me

2 years ago

Reply to TexasTim65

Another benefit of seed saving is that after several years of saving and planting in the same soil one can get plants that are better acclimated to that soil.

Call_Me_Al

Zardoz

2 years ago

Reply to TexasTim65

Careful… Monsanto could show up at your door.

KidHorn

2 years ago

Reply to TexasTim65

I grow lots of things from seed. Mainly because the selection is a lot more. I bought a high efficiency timed LED grow light for $15-$20 on amazon. It’s in my basement in a storage room. More than enough to get germination.

Nuddernoitall

2 years ago

From the WSJ… “there is a chronic shortage of new housing stock, which means homes continue to age. Notably, 62% of homes were 32 years or older in 2021, up from 55% a decade earlier, according to the U.S. Census Bureau. Families may stay put in their homes, but their needs keep changing with new children or aging relatives, which creates a need for home improvement.”

For decades, I’ve joined the chorus of those who think this is an evergreen industry. Companies such as HD and LOW are at the forefront of DIY and contractor home improvement. Of course there are variations in annual sales, foot traffic and discretionary spend. Obviously, we’re seeing one currently.

From an investment selection, I prefer LOW, but if HD’s earning miss (and tepid guidance) drops HD in the buy zone, I’m all in at the proper number.

After today’s miss, HD may be in the woodshed for now. In due time, HD and LOW will be among the earliest to escape and prosper from a temporary (but albeit tougher) cycle.

PapaDave

2 years ago

Reply to Nuddernoitall

Good post.

billybobjr

2 years ago

Reply to Nuddernoitall

You can add quality housing stock . The older homes with larger lots no HSA in neighberhoods that actually

have variation in the housing designs are gone quickly even now and they just aren’t building those type

developments any more . Realtors tell me those places are gone quickly and are in high demand .

ohno

2 years ago

Not to mention there all over the place like fast food restaurants. I recall years ago thinking ‘this will never last’. I had no idea home depot was a $300 stock what a joke. If you’re worth so much fix your damn parking lot! Same goes for walmart, etc,

MPO45v2

2 years ago

I was at HD this past Saturday getting a gift my mother asked for as part of Mother’s Day. The place was empty which surprised me a bit because it is always full on the weekend. There were very few day laborers hanging around either which is more telling than the empty shop.

There have been a few shops in my area that have also closed. Eager for tomorrow’s Target earnings.

shamrock

2 years ago

Go anti-woke go broke.

garryl44

2 years ago

Key point appears to be that lumber prices dropped significantly enough to explain a 4% or so drop.

Tony Bennett

2 years ago

“US consumers threw in the towel on home improvements.”

…

With constipated home sales … not surprising.

Home Depot Cites Unexpectedly Weak Demand for Its Huge Earnings Miss

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