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Home Depot Lowers Sales Forecast For The Remainder Of 2019

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Home Depot Lowers Sales Forecast For The Remainder Of 2019

The world's largest home improvement retailer, The Home Depot, Inc. (NYSE: HD), reported earnings per share (EPS) of $2.53 for its fiscal third quarter 2019 ended Nov. 3, in line with analysts' estimates and $0.02 higher than the 2018 period.  

The Atlanta-based company came in light of net sales expectations at $27.2 billion, $290 million below forecasts. Net sales for the period were 3.5% higher year-over-year as customer transactions increased 1.5% to 401 million and average ticket prices climbed 1.9% to $66.36.

Home Depot's Key Performance Indicators

"Our third quarter results reflected broad-based growth across our business, yet sales were below our expectations driven by the timing of certain benefits associated with our One Home Depot strategic investments. We are largely on track with these investments and have seen positive results, but some of the benefits anticipated for fiscal 2019 will take longer to realize than our initial assumptions," said Home Depot's CEO and president Craig Menear.

The lower than expected sales results prompted Home Depot's management to reel in their full year sales expectations for fiscal 2019. The company's new earnings guidance calls for sales growth of 1.8% (prior 2.3%) and same-store sales growth of 3.5% (prior 4%). Of note, the company's 2019 period has one less working week than 2018.

The company reiterated its EPS guidance of $10.03, which is below the current consensus estimate of $10.14.

The One Home Depot strategy was laid out by management nearly two years ago at its investor conference. The multi-year strategy is aimed at improving the customer's shopping experience both online and in-store. Home Depot is in the process of investing $11 billion in its stores, associate training, the digital experience and its supply chain.

Management said that the investments produced only half of the 100 basis points (bps) of expected comp sales growth. They believe that the underperformance is likely to be short-lived and said that 70% of the variance between their original expectations and the third quarter result was due to declines in lumber prices.

Lumber price deflation resulted in a $175 million sales headwind in the quarter. Additionally, lower copper prices weighed on total net sales of electrical products. Copper prices have been under pressure due to slower industrial output in China as well as U.S.-China trade tensions.

Overall, management said that the revenue headwinds are likely only near-term. Home Depot continues to see broad-based sales growth throughout its chain of stores as consumer discretionary spending remains steady. They did note that an "escalated promotional environment" is weighing on gross margins, which were 30 bps lower in the period.

Rival home improvement store, Lowe's Companies, Inc. (NYSE: LOW) reports its fiscal third quarter results on Nov. 20.

Shares of HD are down 5% on the report.

HD Stock Price Chart – SONAR: STOCK.HD

Image Sourced from Pixabay

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