Home Depot's strong quarter overshadowed by 2023 outlook

February 21st, 2023

Home Depot's second-quarter sales rose slightly as the nation's biggest Atlanta company benefitted from an $18 billion acquisition this spring, but customers continued to rein in spending because of broadly higher costs and elevated interest rates. — A Home Depot logo sign hands on its facade, Friday, May 14, 2021, in North Miami, Fla. (AP Photo/Wilfredo Lee, File)

The Home Depot posted strong profits in its final quarter of 2022, but a tepid outlook for this year sank shares of the home improvement retailer before markets opened Tuesday.

The Atlanta company had a fourth-quarter profit of $3.36 billion, or $3.30 per share, which is 3 cents better than Wall Street had expected, according to a survey of analysts by Zacks Investment Research.

Quarterly revenue of $35.83 billion was just shy of expectations, but the focus was on the retailer’s projections for this year.

Home Depot sees a decline for annual per-share earnings in the mid-single-digit percentage, which caught industry analysts off guard. Wall Street was also projecting a slight uptick in sales, but Home Depot said revenue would be flat.

The company also said Tuesday that it would spend $1 billion on wage increases for its U.S. and Canadian hourly workers, starting this month.

Starting pay will be at least $15 per hour in all markets.

Shares slid 4% in premarket trading.

Home Depot posted huge numbers during the pandemic as millions stuck at home either reworked the space where they lived, or found more spacious accommodations. All of that put the world’s largest home improvement retailer in high demand, both for homeowners, and on Wall Street.

The global economy, however, has been distorted as it tries to put the pandemic behind it, with inflation elevated everywhere and the booming housing market cooling down, partly due to actions taken by the Federal Reserve to cool inflation, namely raising interest rates.

U.S. home sales tumbled to the slowest pace in nearly a decade as soaring mortgage rates and sky high prices in 2022 pushed homeownership out of reach for many Americans.

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

The company also said it would increase its quarterly dividend by 10%, to $2.09, for an annual dividend of $8.36 per share.

A portion of this story was generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on HD at https://www.zacks.com/ap/HD