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Shares of Home Depot Inc. (NYSE: HD ) rose slightly on Wednesday. The stock is down 6% year-to-date. The company reported mixed results for the fourth quarter of 2022 a day ago and offered a muted outlook for fiscal year 2023. Here are three factors that don’t bode well for the home improvement retailer:
Little growth in quarterly results
Home Depot’s net sales of $35.8 billion remained flat in Q4 2022 compared to the year-ago period, while comparable sales declined 0.3%. Net earnings of $3.4 billion were also unchanged from last year. EPS, however, rose nearly 3% to $3.30.
Expected slowdown in home improvement
In its quarterly conference call, Home Depot said customers remained strong amid high inflation for most of 2022, but during the third quarter it saw a slowdown in some products and categories. This became more severe in the fourth quarter and together with the deflation of wood, it led to comps coming in softer than expected.
In Q4 2022, comp transactions decreased by 6%. However, inflation between product categories and demand for new products helped increase the average ticket comp by 5.8%. The company also recorded a positive complex in half of the merchandise department with units such as building materials, pipes and outdoor garden composting above the company average.
Home Depot expects home improvement demand to moderate in 2023. But it remains optimistic about the market’s long-term outlook and believes the company is well-positioned to seize opportunities for growth in the space. In Q4, sales growth in the Pro customer category exceeded the DIY category and Pro backlogs still remained high compared to historical averages.
Gloomy sight
As mentioned on the call, Home Depot expects to see growth in the real economy and consumer spending in 2023. The company has also continued to see normal transactions over the past few quarters as consumers shift spending from goods to services. Home Depot believes that if these changes continue at their current pace, the home improvement market will decline in the low single digits.
For FY2023, the company expects sales and comp growth to remain flat compared to last year. EPS is expected to decline by a mid-single digit percentage. It also expects a planned employee compensation investment of $1 billion to result in an operating margin of around 60 basis points.
Click here to read the full transcript of Home Depot’s Q4 2022 earnings conference call
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