Retailer Earnings Roll In

The biggest retail story today was from Home Depot, which reported its worst revenue miss in 20 years and cut its full-year outlook. 😧

The home improvement retailer’s adjusted earnings per share of $3.82 topped the $3.80 expected. On the surface, that looks all good and well. But its sales numbers are where things fell apart.

Chief Financial Officer Richard McPhail said the company anticipates 2023 as a “year of moderation” following an increased appetite for home improvement during the pandemic. Although the state of the consumer remains healthy regarding income and balance sheets, there is a shift from larger projects to smaller ones. 🏡

That resulted in revenues of $37.26 billion, which fell well short of the $38.28 billion anticipated by analysts. Comparable sales fell 4.5% in Q1, with lumber accounting for more than two percentage points of that decline. Executives also mentioned wetter and colder weather conditions in the western U.S. weighed on results.

Customer transactions fell 5%, with an average ticket of $91.92 staying flat. That’s a significant change from previous quarters, where price increases more than offset volume declines. 🤔

Sales trends were negative overall but were better among do-it-yourself customers vs. professionals. That’s notable, considering most of Home Depot’s business comes from professionals. That contrasts Lowe’s, which has the opposite customer demographic and reports next week. 👷

Overall, executives believe the medium to long-term fundamentals of home improvement are strong.

However, in the near term, the uncertain macroeconomic environment and slow housing market have consumers pulling back on discretionary purchases. Instead, they’re spending more on necessities. And when they do spend discretionary income, it’s going towards travel, dining out, and other experiences instead of home goods.

As a result, they now expect sales and comparable sales to decline by 2% to 5% for the fiscal year and an operating margin of 14% to 14.3%. That’s down from their previous outlook of flat sales and a 14.5% margin. ⚠️

This isn’t a major surprise for those of us tracking retailers every earnings season. For several quarters transaction volumes have been falling. Higher prices offset much of that weakness, but that is no longer. However, the most notable change in this report is management’s acknowledgment of the weakness they had brushed off in previous quarters.

With that said, investors may have priced in the slowdown already. $HD shares remain 35% off their 2021 highs, falling just 2% on the news. 🔻

Time will tell, though. We’ll get more information from Target, Walmart, Lowe’s, and others in the days ahead. 👀

Singapore-based e-commerce and digital entertainment company Sea Ltd. reported weak results today, sending shares tumbling. 📉

The company’s adjusted earnings per share of $0.15 on revenues of $3.04 billion missed the $0.40 and $3.07 billion analysts expected.

A pandemic-era boom pushed the company to a $200 billion valuation at its peak. Tough comparables, contracting multiples, and slower growth caused it to fall nearly 90%, and it still remains 80% off all-time highs. As a result, executives shifted their focus to profitability in an effort to regain the favor of investors. ✂️

So far, it’s been able to achieve positive adjusted EBITDA, driven by strength in Asia markets. International markets remain a drag, though losses have improved significantly YoY. 🔺

With that said investors and executives are pushing for further progress. Part of that includes rationalizing its long-term investments and management team. That’s why, effective May 15, David Ma stepped down as Chief Investment Officer of Sea Capital and joined the board of directors. It’s unclear as of now who will assume that position. 🧑‍💼

Overall, executives remain focused on maximizing operational efficiency and improving user experiences. They’re pleased with the business’ improving fundamentals, which position them well long-term despite near-term macro uncertainties.

While management is confident in the future, investors appear less so. $SE shares fell nearly 18% on the day from the top of their year-long trading range. 👎

With Bed Bath & Beyond riding off into the liquidation sunset, investors are turning their attention to other struggling retailers. And one of those is The Container Store, whose shares are approaching all-time lows again. 😬

The specialty retail chain reported adjusted earnings per share of $0.18, topping estimates by $0.02. However, revenues of $259.7 million fell short of the $265.72 million expected. 👎

A negative foreign currency impact partially explains the weakness, but the broader issue remains the weaker macroeconomic environment. Comparable store sales fell 13.1%, and e-commerce sales fell 6.2% YoY, though gross margins did expand 190 basis points to 58.9%. 

Sales weakness was the driver of other retailers going out of business, so investors anxiously awaited management’s plans to reverse the negative trend. In their press release, executives said they continue to focus on cost management. Meanwhile, they are investing in long-term strategic initiatives like Custom Spaces, e-commerce, and new innovative products designed to drive market share gains. 📝

That said, there doesn’t appear to be an immediate solution to the retailer’s troubles. ⚠️

Executives offered a cautious outlook given what they’re seeing so far during the first quarter. They now expect fiscal year 2024 earnings per share of $0.21 to $0.31 on revenues of $885 to $900 million. Those missed estimates of $0.72 and $1.05 billion by a wide margin, as did their Q1 forecasts.

The gloomy outlook did little to contain investors’ fears that the retailer could be the next victim of the retail-pocalypse. $TCS shares added to regular session losses, falling another 15% after hours. 🔻