What happened
Shares of Home Depot (HD -1.77%) led the stock market lower Tuesday morning. The world's largest home improvement retailer shared its fiscal 2023 first-quarter earnings report and full-year update with investors, and the initial response was to sell the stock.
Home Depot shares dropped as much as 4% in early trading. But the stock pared those losses for several reasons and traded lower by just 1.4% as of 1:15 p.m. ET.
The stock's decline brought year-to-date returns to a negative 10%.
So what
The company beat earnings per share (EPS) expectations, aided by Home Depot's ongoing share repurchase plan. Reducing share count increased per-share earnings, and the company bought back $2.9 billion of its stock in the quarterly period ended April 30.
But investors focused on a big revenue miss and management's reduced guidance going forward. Home Depot reported revenue of $37.26 billion versus an expected $38.3 billion, according to Refinitiv. That was its biggest revenue miss since 2002 and the reasons behind it rattled investors.
Now what
CEO Ted Decker explained the results and guidance change this way:
After a three-year period of unprecedented growth for our sector, during which we grew sales by over $47 billion, we expected that fiscal 2023 would be a year of moderation for the home improvement market. 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. We also observed more broad-based pressure across the business compared to when we reported fourth-quarter results a few months ago.
Sales guidance for the full fiscal year was lowered to a decline of 2% and 5% versus fiscal 2022. That compares to the prior estimate of flat sales comparisons. A previous mid-single-digit year-over-year decline in earnings per share is now thought to become a drop of between 7% and 13%.
Home Depot caters to both residential homeowners and professional contractors, helping to balance its business. But it can't avoid being affected by less housing demand or an economic slowdown when those events occur. That is likely to be a near-term issue, however. Investors who pushed the stock off of its morning lows were looking long term, which makes sense based on the past success of the company.
