Is Something Scary Knocking?

Inflation’s got homeowners saying “hands off” their wallets. At least, that’s what Home Depot said, as it forecasted full-year revenue below the consensus estimate.

The company’s fourth-quarter earnings per share of $3.30 beat the $3.28 expected. However, revenues of $35.83 billion fell short of the $35.97 billion consensus estimate. This marks the first time it’s missed revenue expectations since November 2019. 😬

Executives say a primary driver of this weakness was the drop in lumber prices, which are nearly 80% below their pandemic highs. While prices have settled above pre-pandemic levels, they note that there’s a lot of volatility, and it’s hard to predict lumber prices. 🪵

Overall, the theme remains that pricing pressures are catching up to Home Depot customers, who had been resilient throughout 2022. Executives are now working with a fundamental assumption that consumer spending will be flat as changes in the broader economy start to reflect in consumer behavior.

The post-covid shift in spending is a cyclical headwind. “Do-it-yourself-ers” are spending less on goods and more on travel and experiences. And the housing market slowdown has started to hit professionals like builders, contractors, etc. As a result, total transaction volumes were down 6% YoY, offset by the average ticket size rising 5.8% YoY. 🛒

There’s still a solid backlog of projects in the pipeline, but it’s below last year’s peak and is dwindling as new demand slows.

Looking ahead, Home Depot expects sales and comparable sales to be approximately flat for the new fiscal year. It’s also looking for an operating margin of 14.5%, which includes the company’s $1 billion investment in raising wages for its workers. As such, it expects a mid-single-digit percent decline in diluted earnings per share. 🔻

The softening outlook led to $HD shares falling 7% on the day.

Much like Home Depot, big-box retailer Walmart posted a weaker-than-expected outlook for the year ahead. And for a lot of similar reasons… 🤔

Before we get into its outlook, it’s worth mentioning the company’s holiday-quarter earnings and revenue beat expectations. Adjusted earnings per share of $1.71 and revenues of $164.05 billion beat the expected $1.51 and $159.72 billion. 👍

Driving the positive results were cost-conscious shoppers looking for food, gifts, and household items at a lower price. In other words, inflation and economic anxiety have people bargain-hunting.

And it’s not just low and middle-income shoppers. Executives confirmed that some of the growth is coming from higher-income consumers “trading down” after feeling the pinch over the last year. Walmart CFO John David Rainey said, “The consumer is still very pressured. And if you look at economic indicators, balance sheets are running thinner, and savings rates are declining to previous periods.” 🛍️

As such, the company is taking a more cautious approach to its outlook. It now expects U.S. same-store sales growth of 2%-2.5% (excluding fuel), below the 3% analysts expected. That’s also well below the 8.3% YoY growth this past quarter. 🔻

Overall, the message from Walmart executives is that consumer behavior is continuing to adjust to a weaker economic environment. As a result, the retailer is ratcheting down its expectations now to avoid the mistakes made throughout 2022 when issuing guidance.

$WMT shares fell as much as 5% in the pre-market but recovered to close green. 📈

Coinbase shares nearly tripled off their December lows as the crypto market, and other rate-sensitive assets caught a strong bid. 💪

Today investors got another look at the company’s earnings as they try to determine whether the stock price’s turnaround will continue…Or if the company’s struggling fundamentals will keep a lid on the share price.

Let’s take a look. 👀

First off, the company reported a loss per share of $2.46 on revenues of $629 million. The loss was wider than the $2.55 expected, but revenues topped the $590 expected. With that said, revenue is down roughly 75% YoY as the crypto winter continues to impact engagement metrics.

Speaking of engagement, monthly transacting users (MTUs) fell from 8.5 million to 8.3 million QoQ. However, that was still higher than the 8.22 million analysts expected. Retail transaction revenue of $322 million did miss the $327 million expected. 🔻

Since trading volumes remain low and pricing power is compressing in the space, the company is continuing efforts to cut expenses and survive the market rout. It expects restructuring expenses of $150 million in the first quarter.

Regulatory risk remains a big concern for executives and investors alike. The U.S. Securities & Exchange Commission (SEC) and other agencies have recently taken a more aggressive approach toward the industry. That’s unlikely to go away anytime soon, though some point out it could be a positive for Coinbase, which is already an established U.S. exchange. 🕵️

Despite the lackluster results, $COIN shares are only down about 1% after hours as investors assess the future of crypto. 🤷