Home Depot, after years of explosive growth, cuts its outlook as Americans cool spending on homes

After years of explosive growth during the pandemic, Home Depot’s revenue during the first quarter fell short of expectations and the company cut its profit and sales outlook for the year, sending shares skidding before the opening bell Tuesday.

It was a rough start to a busy week of retail earnings and the numbers from the nation’s biggest home improvement chain dragged down retails stocks as well as the Dow.

For the three months ended April 30, revenue dropped to $37.26 billion from last year’s $38.91 billion, and it was short of the $38.45 billion projected by analysts polled by Zacks Investment Research.

Sales at stores open at least a year, a key indicator of a retailer’s health, dropped 4.5%, and it dropped 4.6% for stores in the U.S.

“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,” said CEO Ted Decker.

Decker said weak sales were mostly due to lumber deflation and bad weather, particularly in its Western division which had to contend with extreme weather in California.

But the Atlanta company cut its expectations for the year with as shift in spending becomes more clear with the economy slowing and costs rising for builders and homeowners.

The U.S. Federal Reserve has hiked benchmark interest rates 10 consecutive times with hopes of slowing the economy and cooling inflation.

The U.S. economy slowed sharply from January through March, decelerating to just a 1.1% annual pace as higher interest rates hammered the housing market and businesses reduced their inventories. An estimate from the Commerce Department last month showed that the nation’s gross domestic product — the broadest gauge of economic output — weakened after growing 3.2% from July through September and 2.6% from October through December.

Home Depot cautioned in February that it expected profits to slip this year. The chain saw remarkable growth over the past three years, as many people hunkered down at home or were searching for a new home during the pandemic. Americans spent heavily on home renovations and other projects.

With the easing of the pandemic, Americans began to spend on things that had faded in recent years, like dinners out and vacations.

Home Depot earned $3.87 billion, or $3.82 per share, in the quarter. A year earlier it earned $4.23 billion, or $4.09 per share. That was better than the per-share earnings of $3.80 that industry analysts were expecting.

Home Depot Inc. now expects sales and same-store sales to decline between 2% and 5% this year. Several months ago, the company said it expected sales to be flat compared with 2022.

The chain now expects full-year earnings to fall between 7% and 13%, expanding the potential decline from earlier expectations that the retreat would remain solidly in the single-digit percentage range.

Shares dropped more than 3% before the market open on Tuesday.