Home Depot cuts forecasts, signals weakness ahead for big US retailers

As a huge earnings week for U.S. retailers begins, Home Depot Inc. on Tuesday lowered its outlook for 2017 sales and forecasted a bigger profit fall than expected, raising concerns that inflation-conscious customers may cut down on discretionary spending.

The largest home improvement retailer’s shares fell almost 4%, while its smaller rival Lowe’s (NYSE:LOW) Cos Inc down about 3%. The retailer also cited a rainy start to Spring and declining lumber costs for the first-quarter sales shortfall.

Americans are spending less on home renovations, and home improvement businesses have lost some of their panache from the epidemic period. Persistent inflation also contributed to a six-month low in consumer mood in May.

According to William Bastek, senior vice president of merchandising at Home Depot (NYSE:HD), demand was low for discretionary products like patio furniture and grills and appliances, flooring, kitchen, and bath.

Analysts had predicted a 1.74% decline in quarterly comparable sales, but a shift in emphasis towards travel, vacations, and other services also hurt.

It certainly comes as a surprise. In contrast to our expectations, the pace and size of the deterioration are unexpected, according to D.A. Davidson analyst Michael Baker.

Target Corp. (NYSE:TGT) and Walmart Inc. are expected to release earnings on Wednesday and Thursday, respectively. Home Depot starts off a massive week for U.S. retailers.

“Compared to a few months ago, the American customer is a bit more unsure. And based on what we hear from the other stores, I believe it will be a recurring issue, according to Scot Ciccarelli of Truist Securities.

In contrast to its previous forecast for essentially flat sales, Home Depot anticipates that fiscal 2023 comparable sales would decrease by 2% and 5%. According to Refinitiv IBES data, analysts had predicted a drop of 0.9%.

Even though it reported a quarterly profit of $3.82 per share, surpassing predictions of $3.80, the business predicted profits per share to shrink between 7% and 13%, compared to a mid-single digits reduction previously estimated.