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An Early Reaction To Home Depot's Sales, Guidance Shortfall

An Early Reaction To Home Depot's Sales, Guidance Shortfall

Home Depot Inc (NYSE: HD) reported a sales miss in its fourth-quarter results, along with a same-store sales miss and poor outlook for 2019.

Oppenheimer: Focus On Comps Growth

Home Depot's EPS in the fourth quarter would have come in better than expected if it wasn't impacted by $247 million in nonrecurring charges from the impairment loss related to trade names at Interline Brands, Oppenheimer's Brian Nagel said during CNBC's "Squawk Box" segment. While sales were "a bit light" and same-store sales missed against expectations, the company faced warmer weather challenges in December which is a negative for home improvement companies.

Management's comparable sales growth guidance of 5 percent for 2019 so early into the new year shows it's confident in the outlook. Nagel said this should be the main takeaway from the print due to ongoing reports suggesting the consumer is weakening and troubled home sales.

CFRA: Lots Of Growth Metrics But Weak Guidance

Home Depot's consumer base in the main segments remained strong in the fourth quarter which helped drive year-over-year revenue growth, transaction growth, ticket size growth and better sales per square foot, according to Ken Leon, global director of research at CFRA.

Home Depot's 2019 EPS guidance of $10.03 fell short of expectations by 23 cents which Leon said begs the question: is the U.S. economy flashing warning signs that the Street isn't picking up on? Instead, the shortfall could be due to higher input costs or labor costs.

"Something, maybe on margins, is driving what looks to be weak guidance ahead," said Leon.

Credit Suisse: 5 Considerations

Investors may want to consider paying attention to five key points for management to address during the post-earnings conference call, Credit Suisse's Seth Sigman said in a research report. These include:

  • Impact of traffic and ticket trends and inflation trends;
  • Weather trends after last quarter's negative 50 basis point impact;
  • Trends quarter-to-date;
  • Macro trends, especially what "housing market benefit" is factored into the guidance; and
  • Underlying trends in "base comps excluding temporary factors" like weather, foreign exchange and inflation.

Sigman maintains a Neutral rating on Home Depot with an unchanged $194 price target.

Shares traded down 3.3 percent to $183.85 at time of publication.

Related Links:

The Street Reacts To Home Depot's Q3 Beat

A Few Key Takeaways From Home Depot's Sell-Side Presentation

Latest Ratings for HD

Oct 2019AssumesOutperform
Sep 2019MaintainsOutperform
Sep 2019DowngradesHoldSell

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