By Deborah Mary Sophia
(Reuters) -Home Depot Inc on Tuesday cut its annual sales forecast and projected a steeper decline in profit than previously expected, signaling slumping demand for tools and building materials as inflation-wary Americans cut back on spending.
Shares of the largest U.S. home improvement chain tumbled about 4% premarket, while those of smaller rival Lowe’s Cos Inc dropped 3%.
Home improvement retailers have now lost their pandemic-era sparkle as consumers shift away from home renovations and focus on travel, vacations and other services, driving quarterly transactions 4.8% lower at Home Depot.
“It’s definitely a surprise. The speed and magnitude of the weakness is surprising relative to what we were thinking,” D.A. Davidson analyst Michael Baker said.
Home Depot kicks off a big week for U.S. retailers’ earnings, with Target Corp and Walmart Inc scheduled to report on Wednesday and Thursday, respectively.
Data on Friday showed consumer sentiment slumped to a six-month low in May, while U.S. long-term inflation expectations jumped to the highest since 2011.
While Home Depot is grappling with a bigger slowdown in the home-related sector, the results signal retail sales will be soft across the board, Baker added.
An unusually wet and cold March across many parts of the U.S. further dented sales at a time when lumber prices have declined, while Home Depot finance chief Richard McPhail said demand was softening even further compared to the company’s expectations.
Home Depot now expects fiscal 2023 comparable sales to fall between 2% and 5%, compared to its prior outlook for nearly flat sales. Analysts were expecting a 0.9% decline, according to Refinitiv IBES data.
The company forecast earnings per share to decline between 7% and 13%, compared to a mid-single digits decline estimated previously.
Home Depot’s first-quarter comparable sales decreased 4.5%, compared with estimates for a 1.74% drop.
The company posted a profit of $3.82 per share, above estimates of $3.80.
(Reporting by Deborah Sophia in Bengaluru; Editing by Sriraj Kalluvila)