Home Depot cuts sales forecast in sign consumers are reining in renos

Home Depot Inc on Tuesday cut its annual sales forecast and projected a steeper-than-expected decline in profit, stoking fears about inflation-wary consumers trimming discretionary spending as a big earnings week for U.S. retailers rolls out.

Shares of the largest U.S. home improvement chain, which also blamed a wet start to spring and falling lumber prices for a first-quarter sales miss, tumbled about four per cent, while those of smaller rival Lowe’s Cos Inc dropped nearly three per cent.

Home improvement retailers have lost their pandemic-era sparkle as Americans cut back spending on remodeling their living spaces, with persistent inflation dragging consumer sentiment to a six-month low in May.

Demand was weak for discretionary items like patio furniture and grills, as well as appliances, flooring, kitchen and bath, said William Bastek, executive vice president of merchandising at Home Depot.

A shift in focus toward travel, vacations and other services also pinched, driving quarterly comparable sales down 4.5 per cent, bigger than analysts’ estimate for a 1.74 per cent drop.

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“It’s definitely a surprise. The speed and magnitude of the weakness is surprising relative to what we were thinking,” D.A. Davidson analyst Michael Baker said.

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Home Depot kicks off a big week for U.S. retailers, with Target Corp and Walmart Inc scheduled to report results on Wednesday and Thursday, respectively.

“The U.S. consumer is a little bit more uncertain than they were a few months ago. And I think that’s going to be a common
theme for what we hear from the other retailers,” Truist Securities analyst Scot Ciccarelli said.

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Home Depot now expects fiscal 2023 comparable sales to fall between two per cent and five per cent, compared to its prior outlook for nearly flat sales. Analysts were expecting a 0.9% decline, according to Refinitiv IBES data.

The company forecast earnings per share to decline between 7% and 13%, compared to a mid-single digits drop estimated previously, even as it posted a quarterly profit of $3.82 per share, above estimates of $3.80.
Meanwhile, U.S. retail sales rose 0.4 per cent last month, the Commerce Department said on Tuesday, increasing less than expected.

However, the underlying trend was solid, suggesting that consumer spending likely remained strong early in the second quarter, despite growing risks of a recession this year.

(Reporting by Deborah Sophia in Bengaluru; Editing by Sriraj Kalluvila)