Home Depot (HD) Q4 earnings 2022

Home Depot’s revenue fell short of Wall Street’s estimates in its fiscal fourth-quarter earnings report Tuesday.

The company also provided a muted outlook for the next year amid a tough consumer backdrop.

Here’s what Home Depot posted, compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

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

It’s the first time Home Depot missed Wall Street’s revenue expectations since November 2019, before the Covid pandemic. Shares of the company fell Tuesday morning.

In the quarter ended Jan. 29, Home Depot reported $35.83 billion in sales, up 0.3% from the year ago period, which saw $35.72 billion in revenue. The retailer’s reported net income of $3.36 billion, or $3.30 per share, was also 0.3% higher than the year ago period, which was $3.35 billion, or $3.21 per share.

Amid record levels of inflation, a shift in consumer behavior and a housing market slowdown, the home improvement retailer has repeatedly beat the Street’s expectations over the last year but fell a bit short in sales estimates.

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

“But for 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’ve seen a little more stability in recent weeks and months, but it’s hard to predict lumber prices.”

Home Depot said it expects sales and comparable sales to be approximately flat for the new fiscal year. It projects an operating margin rate of about 14.5%, which is impacted by a $1 billion investment Home Depot is making in wage growth. 

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

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

“So we work from kind of a fundamental assumption that consumer spending will be flat. We know that our market has seen a gradual shift that reflects the broader shift in the economy, in consumer spending from goods to services,” he said.

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

These days, shoppers are using their discretionary dollars toward experiences and travel as many burn through their savings amid consistent inflation.

Still, McPhail insisted investments Home Depot has made positions it to “take share in any environment” and the company is confident it’ll overcome any market pressures.

Total customer transactions dropped 6% in the quarter compared with the year ago period but the average ticket cost – $90.05 – was up 5.8%.

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

“To be fair, the final quarter results are not terrible – especially as they come off the back of a long period of extremely good growth – but they nevertheless represent a material 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 spend for the home improvement sector.

“Unfortunately for Home Depot, the dip in the housing market also coincided with a fall in the number of people undertaking DIY,” said Saunders.

“Our data show that the number of improvement projects done by consumers fell over the prior year as people conserved cash for other activities over the holiday period.”

Still, despite a relatively stagnant housing market following a red-hot 2021, the retailer thinks high mortgage rates could prove beneficial for its results.

“As mortgage rates increase, we see a kind of an interesting dynamic in homeowners who are happy with their fixed-rate mortgage and then decided to improve in place,” said McPhail.

“You just don’t have very many willing sellers in the market today … that is driving the tendency to improve in place.”

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 $16.4 billion.

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

Read the full earnings release here.