First-quarter results released Tuesday morning were indeed worse than even the company expected, as officials said during the earnings conference call. Sales in the retail segment fell 4.3%, and same-store sales decreased 7.6%. Total sales managed a 0.6% overall gain, but this was due to acquisitions in Home Depot Supply, the company's non-retail professional contractor and builder division, which also posted negative organic growth.
Diluted earnings came in at $0.53, a precipitous 24% drop from last year's first quarter, and below analyst expectations. Reasons cited included the weather, the sale of lower-margin appliances, and a tough housing market, especially in markets such as Boston and Florida.
Those are pretty grim results, and Home Depot isn't planning for any near-term improvements. Nobody knows when new home sales trends will improve. This hurts homebuilders such as Pulte
In other words, this is not the ideal time for Home Depot to have to spend to improve its customer service, store environment, and supply-chain efficiencies. Unfortunately, previous management decided to focus on growing the lower-margin supply business, which it might sell now.
For the longer term, management looks to be taking the right steps to rectify past shortfalls in investing in the retail business. There's a lot of uncertainty right now, because it's hard to tell which woes stem from troublesome industry conditions, and which are specific to the company. We'll have more clarity once Lowe's reports results next week, and it also helps to keep tabs on other industry players, such as Mohawk Industries
As it stands now, Home Depot expects full-year earnings to come in at the low end of the 4% to 9% fall it projected earlier this year. Time will tell whether the low valuation and restructuring moves end up paying off for investors. In the meantime, we can collect a 2.3% dividend yield and hold out hope that it can recapture at least some of its former high-flying performance.
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Fool contributor Ryan Fuhrmann is long shares of Home Depot and Lowe's but has no financial interest in any other company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.