Home Depot just forecast weak consumer demand — here’s what that could mean for the rest of the economy

Just an awful earnings report from the stock market’s most important retailer on Tuesday: Home Depot.

Bottom line – the broader-market implications of Tuesday morning’s post-earnings stock move for Home Depot are going to be significant.

Home Depot tumbled more than 5%, or $13 a share, in premarket trading, which was worth about 100 points on the Dow Jones Industrial Average. It was taking a big bite out of the S&P 500, too. Once trading opened, the stock recovered some of its gains, and was recently down about 1.5%, still big enough to shave about 30 points off the Dow.

Remember, it’s the most impactful retailer in the price-weighted Dow – having almost double the weight of Walmart (since it is almost double the price). And despite Walmart’s much larger market cap, Home Depot has both a greater index and earnings influence in the S&P 500 due to the Walton family’s hefty stake in Walmart that reduces its weighting in the main equity benchmark.

Lowe’s is down 1.5% in sympathy, but it won’t report results until next Tuesday.

Home Depot’s EPS beat by 2 cents as a 3.9% reduction in SG&A costs helped a little. However, it is still the retailer’s first earnings decline since May 2020 (i.e., since the start of the Covid pandemic).

But the real story is the demand destruction – as indicated by the company’s huge revenue miss. Sales were 2.7% below Wall Street’s expectations ($37.26B vs. $38.28B est. from Refinitiv) – its biggest revenue miss since November 2002. It is also the second straight revenue miss for the home improvement retailer – which follows 12 straight revenue beats. It’s also the biggest revenue drop since the financial crisis (revenue down 4.2% YOY in the latest quarter). Comps came in down 4.5% vs. down 1.6% consensus estimate (StreetAccount), with transactions falling 4.8% and average ticket basically flat (slightly positive).

Pretty darn ugly.

So what’s hurting demand? A number of factors. In Q1 – extreme weather in California hurt. But problems stretch beyond the weather. There’s also lumber deflation. But most importantly, as CEO Ted Decker flagged, “We also observed more broad-based pressure across the business compared to when we reported fourth quarter results a few months ago.”

The company has cut its FY EPS and revenue growth projections due to the weak Q1 as well as “further softening of demand relative to our expectations, and continued uncertainty regarding consumer demand.” The new forecast is not pretty. Home Depot sees full-year revenue down 2%-5% vs. the down 0.7% consensus estimate and EPS down 7%-13% vs. the down 5.7% consensus estimate.