Home Depot Stock Earnings: HD drops 5% on revenue miss, comparable sales decline

• Home Depot revenue missed projections by over $1 billion in Q1.
• Comparable sales fell 4.5% YoY.
• HD stock dropped nearly 5% on the news.
• Historical support on the daily chart shows up at $281.

Home Depot (HD) stock careened 4.8% lower in Tuesday’s premarket to $274.83 after the preeminent home improvement retailer in the United States posted a similar decline in sales for the fiscal first quarter. Home Depot saw comparable sales drop 4.5% YoY and 4.6% in the US alone. Revenue of $37.3 billion fell 4.1% YoY and missed Wall Street consensus by $1.05 billion.

Home Depot Stock News: Customers pull back spending

The good news in the quarter comes from the profit side. Home Depot reported GAAP earnings per share (EPS) of $3.82, which beat analyst consensus by just less than 1%. The market, however, is mainly focused on the revenue shortfall. April retail sales figures will be released an hour before the market opens in New York, and market observers are already wondering if Home Depot's results will show up in those wider economy figures. As a result Dow futures have trended down 0.3% early Tuesday.

"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. “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.”

Essentially, it appears that the covid pandemic pulled forward a lot of demand for do-it-yourself home renovations as many were stuck at home for months on end. Additionally, a lack of supply led to an enormous price increase in timber that lasted through the first quarter of 2022 before dropping back to normal levels. As a major distributor of lumber, Home Depot's sales results are somewhat distorted by that commodity.

Management views the first quarter as carrying on into full-year results. Home Depot executives expect comparable sales to pull back by between 2% and 5% compared to the prior year. While the operating margin for the full year is projected to remain above 14%, diluted EPS will decline between 7% and 13% YoY.

Home Depot stock forecast

Home Depot stock immediately crashed into support from March around the $281 level. If that gives way, it is possible that enough selling could push HD shares down to the demand window that ranges from $264.50 to $268. That supportive range held up on three separate occasions last year – in June, September and October. This downtrend in Home Depot was already heralded on May 5, when the 9-day moving average dropped below its 21-day counterpart. The market seemed to already be telgraphing its descent.

Expect either this downtrend to continue, but if $281 holds over the next week then HD stock will remain in neutral territory. There still won't be a bull call on the stock until it breaks through resistance that sits in a range between $300 and $303.

Home Depot daily chart