Home Depot stock was dropping Tuesday after the home-improvement retailer missed expectations for first-quarter sales and slashed its 2023 outlook.

Home Depot (ticker: HD) reported earnings of $3.82 a share in the first three months of the year, slightly ahead of earnings of $3.80 eyeballed by analysts surveyed by FactSet. But quarterly sales of $37.8 billion were short of estimates of $38.3 billion.

It got worse with the guidance. Home Depot slashed its outlook for fiscal 2023, now projecting sales to fall between 2% and 5% from 2022, having said in February that yearly sales should be flat year over year. The group also cut its outlook for earnings per share, now likely to slide between 7% and 13% on an annual basis, down from previous guidance of a mid-single digits decline.

"Given the negative impact to first-quarter sales from lumber deflation and weather, further softening of demand relative to our expectations, and continued uncertainty regarding consumer demand, we are updating our guidance to reflect a range of potential outcomes," said Richard McPhail, the company's chief financial officer.

Shares in Home Depot shed 4% in premarket trading.

This is breaking news. Read a preview of Home Depot's earnings below and check back for more analysis soon.

Punxsutawney Phil saw his shadow when he emerged from his burrow this Groundhog Day, forecasting six additional weeks of winter. Turns out that prediction was at least accurate enough to put a chill on Home Depot, which reports first-quarter earnings on Tuesday.

Wall Street is projecting Home Depot (ticker: HD) will post adjusted earnings of $3.80 per share, down from the year-ago quarter's $4.09 a share, according to consensus estimates from data aggregator FactSet. Sales are expected to fall by roughly 1.5% compared to last year to $38.3 billion, dragged down by a 1.6% decrease in same-store sales.

But sentiment is mixed ahead of the earnings report as the home improvement industry navigates macroeconomic turbulence made all the worse by unseasonably cold weather. Shares of Home Depot are down 9% this year. Warmer weather helps spur both do-it-yourself and professional construction projects.

"We attribute softer 1Q trends more to unseasonable weather than consumer softening, although both occurred," wrote TD Cowen analyst Max Rakhlenko in a note to clients. Rakhlenko, who has an Outperform rating on Home Depot and $360 price target, lowered his earnings per share estimates to $3.68 a share, well below the consensus figure.

Weather has been a thorn in the side of similar companies that have already reported earnings, including Tractor Supply Co. (TSCO) and Sherwin-Williams (SHW). In an earnings call with analysts, Tractor Supply said that inclement weather caused a 2 percentage point decline in comparable-store sales. Granted, Tractor Supply's core business leans more toward agriculture—which is even more weather-dependent—but the company's results are often a "decent read through" for home-improvement retailers such as Home Depot and Lowe's, said Raymond James analyst Bobby Griffin. Griffin has a Market Perform rating, but does not have a price target.

Weather aside, Home Depot may also face some challenges from softness in the housing market, which has been in a bit of a slump over the past few quarters as rising interest and mortgage rates hinder consumer demand. As Barron's previously reported, the spring buying season, which is typically one of the busiest, has been slower than usual this year.

While home improvement retailers can still benefit when people aren't in the market for a new home, investors worry that recession fears have also discouraged people from undertaking renovation projects.

For Morgan Stanley analyst Simeon Gutman, the bigger question is whether Home Depot will reiterate or lower its full-year guidance before its June investor conference. Currently, the company is forecasting full-year same-store sales to be flat. The analyst has an Overweight rating and $340 price target.

"If HD is seeing incremental deceleration, it makes sense to lower guidance now rather than allow a negative revision to be the focus of June's meeting," he wrote in a research note. "But, a lowered guide would raise the question: what didn't HD see coming?"