Falling lumber prices and lower spending by DIY customers drags on Home Depot sales and stock price
- Sliding lumber prices and softer consumer demand hit sales at Home Depot in the first quarter.
- Framing lumber prices dropped 64% in a year, while sales for patio furniture and grills softened.
Lumber prices under pressure contributed to Home Depot missing quarterly sales expectations, leading to the home improvement retailer's shares dropping to a nearly seven-month low Tuesday
Fiscal first-quarter sales fell 4.2% to $37.3 billion, falling short of the $38.3 billion analysts expected in a FactSet poll. Earnings fell to $3.82 a share but were ahead of the $3.80 estimate.
"Our sales for the quarter were below our expectations primarily driven by lumber deflation and unfavorable weather, particularly in our Western division as extreme weather in California disproportionately impacted our results," Home Depot CEO Ted Decker said in the earnings statement. Home Depot also cut its outlook on sales.
Framing lumber during the quarter sold at an average of $420 per thousand board feet, sliding 64% from $1,170 in the same quarter in 2022, the company said during a conference call.
Shares of Home Depot fell as much as 3.9% to an intraday low of $277.10, the weakest price since late October. The decline was later pared to 1.5%.
Rocketing interest rates and sluggish housing market activity have weighed on lumber prices since last year when the Federal Reserve began its most aggressive rate increases in decades to tame inflation. Lumber prices have also dramatically come off highs hit during the COVID-19 pandemic. The building commodity jumped past $1,700 per thousand board feet in May 2021, partially as people used their time on home improvements.
"Pro results experienced a disproportionate impact as a result of lumber deflation," the company said in the conference call, addressing a 2.9% fall in online sales from a year ago. A wet start to spring hurt sales from professional and do-it-yourself customers.
"DIY customers outperformed the Pro in the quarter, but both were negative," it said.
The company, which runs more than 2,300 stores, said it's seeing softer demand for big-ticket discretionary items such as patios and grills following unprecedented overall demand in the home improvement market. Favorable weather, however, did strengthen smaller ticket outdoor projects.
Comparable sales fell by 4.5% in the quarter ended April 30 and declined by 4.6% at US stores.
It now foresees sales and comparable sales in fiscal 2023 declining between 2% and 5%, a downgrade from its previous outlook of flat growth. It trimmed its projection for its operating margin rate from 14.5% to a range of 14% to 14.3%.
Investors should expect per-share earnings to decline between 7% to 13%. It previously expected a pullback by mid-single digits.
Home Depot shares have lost about 10% so far this year, trailing the S&P 500's rise of more than 7%.
Ahead of new lumber futures contracts coming to market this week, prices ended at $339 per thousand board feet on Friday, according to The Wall Street Journal.
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