Home Depot (HD) Q4 Earnings 2022

Home Depot sales on Tuesday fell short of Wall Street estimates in its fiscal fourth-quarter earnings.

The company also gave a dovish outlook for the next year amid a tough consumer environment.

Here’s what the company posted, compared to what Wall Street expected, based on a survey of analysts by Refinitiv:

• Earnings per share: $3.30 versus $3.28 expected
• Revenue: $35.83 billion versus $35.97 billion expected

It’s the first time Home Depot has missed Wall Street’s revenue expectations since November 2019, before the Covid pandemic. Shares of the company fell 4% in premarket trading.

In the quarter ended Jan. 29, Home Depot reported revenue of $35.83 billion, up 0.3% from the year-ago period of $35.72 billion. The retailer’s reported net income of $3.36 billion was also 0.3% higher than last year, which was $3.35 billion, or $3.21 per share.

Amid record inflation levels, a shift in consumer behavior and a slowdown in the housing market, the home improvement retailer has repeatedly beat street expectations over the past year but fell a little short on sales estimates.

The company attributed that solely to a decline in lumber costs, which had increased in price due to nationwide shortages in fiscal year 2021. The lumber decline negatively impacted comparable sales by 0.7%, the company said. .

“But before that, we would have been right in line with our expectations,” Home Depot CFO Richard McPhail told CNBC.

“After two years of high volatility, we have seen some stability in recent weeks and months, but it is difficult to predict timber prices.”

Home Depot said it expects revenue and comparable sales to be about the same for the new fiscal year. They forecast an operating margin of about 14.5%, which will be impacted by a $1 billion investment Home Depot is making in wage growth.

Home Depot expects a mid-single-digit percentage decline in diluted earnings per share.

The retailer gave off the dovish outlook because it expects some pressure in the goods sector and flat consumer spending, McPhail said.

“So we’re kind of assuming that consumer spending will stay flat. We know our market has seen a gradual shift that mirrors the broader shift in the economy, in consumer spending from goods to services,” he said.

“During Covid, we saw a shift to goods. Over the last almost two years, we’ve seen a gradual shift from goods to services and we think our market reflects that and we think that dynamic could put some pressure on our market.”

Today, shoppers use their discretionary dollars for experiences and travel as many burn through their savings amid continued inflation.

Still, McPhail insisted that the investments the company has made will allow them to “take stock in any environment” and they are confident they will overcome any market pressures.

Total customer transactions fell 6% in the quarter compared to the same period a year ago, but the average ticket price — $90.05 — rose 5.8%.

“After a year of defying gravity, the slowing economy and pressure on consumers have finally caught up with Home Depot,” GlobalData general manager Neil Saunders said in a statement.

“To be fair, the last quarter’s results aren’t terrible – especially as they’re the result of a long period of extremely good growth – but they nonetheless represent a significant slowdown and are the worst quarterly performance in two years.”

Saunders said Home Depot’s earnings reflect a slowdown in the housing market, which is a key driver of spending for the home improvement industry.

“Unfortunately for Home Depot, the dip in the housing market also coincided with a drop in the number of people doing odd jobs,” said Saunders.

“Our data shows that the number of home improvement projects done by consumers is down from the previous year as people have been saving money for other activities during the holiday season.”

Still, despite a relatively stagnant housing market after a scorching hot 2021, the retailer thinks high mortgage rates could benefit its bottom line.

“As mortgage rates rise, we’re seeing kind of an interesting dynamic with homeowners who are happy with their fixed-rate mortgage and then decide to improve,” McPhail said.

“You just don’t have a lot of willing sellers in the marketplace these days…that encourages the tendency to improve on the spot.”

Overall, the company saw $157.4 billion in sales in fiscal 2022, up 4.1% from fiscal 2021, and $17.1 billion in profit, a small jump from its $16.4 billion reported last year.

The company will hold an earnings call with investors at 9 a.m. ET.

Read the full press release here.