The news: The stagnant housing market and tough year-over-year comps are finally catching up to Home Depot. The company reported:

• Sales were $37.3 billion in fiscal Q1, down 4.2% year-over-year (YoY).
• Comparable sales decreased 4.5%, and comparable sales in the US fell 4.6% YoY.
• Net earnings for the first quarter of fiscal 2023 fell 6.6% to $3.9 billion, or $3.82 per diluted share, down from $4.2 billion, or $4.09 per diluted share, a year earlier.

While Home Depot noted cold weather and lumber deflation impacted its Q1 numbers, its challenges run deep as it forecasted a decline of 2% and 5% for the fiscal year. That’s down from its previous outlook of roughly flat sales.

The challenge: After many stuck-at-home consumers embarked on home improvement projects early in the pandemic, there are fewer prospective customers in the market for items like appliances and paint.

• The US housing market is also in a rut with pending home sales decreasing in March for the first time since November 2022, per the National Association of Realtors. With fewer people on the move, there are fewer shoppers buying products such as house paint, appliances, and patio furniture for their new homes.
• While many consumers continue to spend, they’ve pulled back on the exact type of expenses that fueled Home Depot’s impressive run over the past few years, such as large-scale renovation projects, and big-ticket items such as patio sets and grills.
• Home-related items are often among the first category consumers cut back on when they reduce discretionary spending.

The big takeaway: The challenges faced by Home Depot are likely to be felt by a wide array of companies in the home goods space.

• Our Retail & Ecommerce Sales, US forecast expects the category to grow just 3.2% this year, which is the one of the slowest rates among the categories we track.