Home Depot’s (NYSE:HD) sales continue to decline amidst ongoing challenges tied to persistent inflation, leading the company to revise its outlook for the year. Despite this, the nation’s largest home improvement retailer has managed to surpass expectations for the quarter.

The company now projects a decline in earnings per share between 9% and 11% in 2023, with same-store sales expected to fall by 3% to 4%. This adjustment is a slight narrowing from the initial forecast, which foresaw an earnings per share drop ranging from 7% to 13% and a same-store sales decline of 2% to 5%.

This marks the first time Home Depot has anticipated a yearly sales decrease since 2009, a period marked by the economic fallout from a significant housing bubble.

The impact of inflation is being felt across various aspects of Home Depot’s operations. Consumers, grappling with rising costs, are becoming more cautious about their spending habits. Home Depot’s average receipt during the same period dropped by 0.3% compared to the previous year, and customer transactions saw a 2.4% decline. Additionally, the increasing expense of using credit cards or obtaining loans for significant purchases, attributed to the Federal Reserve’s efforts to combat inflation, is affecting consumer behavior.

Furthermore, the Fed’s decision to raise interest rates to mitigate inflation has created disruptions in the real estate market, a factor crucial to Home Depot’s success. With fewer people moving from their homes after securing ultralow mortgages, and existing homes in short supply, the company faces challenges in maintaining sales levels.

In the third quarter, Home Depot reported a 3% decline in revenue, amounting to $37.71 billion, which surpassed the $37.52 billion expected by Wall Street analysts. Sales at stores open for at least a year, a vital metric for a retailer’s health, fell by 3.1%, with a 3.5% decline in the U.S.

CEO Ted Decker acknowledged the shift in consumer behavior, noting a focus on smaller, more affordable projects rather than major renovations. Big-ticket items, particularly appliances often purchased using credit, have seen a decline due to the increased cost associated with the Federal Reserve’s efforts to curb inflation.

Despite the challenging landscape, Home Depot exceeded analyst expectations for earnings, reporting $3.81 billion, or $3.81 per share, slightly above the anticipated $3.76 per share. However, this figure reflects a decrease from the previous year when the company earned $4.34 billion, or $4.24 per share.

While Home Depot’s sales are currently under pressure, industry observers suggest that the situation may improve when economic conditions stabilize or a backlog of deferred projects generates renewed demand. Nevertheless, a swift resolution seems unlikely in the near term. As Home Depot navigates these challenges, its competitor Lowe’s has also seen a rise in its shares ahead of its upcoming quarterly earnings release.

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