Home Depot Shares Drop after 1Q Sales Miss Estimates
Home Depot Inc on Tuesday missed Wall Street estimates for sales as long winter hurt sales of springtime gardening products.
The miss was the first in seven quarters for Home Depot. In recent years, it has largely opposed the trend of big-box stores losing consumers to online retailers including Amazon.com.
Further, spring is the season when many shoppers buy gardening supplies and start home renovations. It makes it a key quarter for home improvement retailers.
“This clearly is a garden story for us,” said CEO Craig Menear. “The miss in terms of garden was significant for what we planned.”
Menear was indicating sales of garden-related products such as fertilizers and mulch. It accounted 15% to 20% of revenue.
Moreover, Home Depot posted same-store sales dropped 4.2%, compared to the 5.4% of analysts’ estimates. However, excluding performance of its garden business, comparable sales rose 6.5%, executives said on a conference call.
“While spring was a reluctant bride, she has arrived,” Chief Financial Officer Carol B. Tome said. “Month to date, our May comparable sales are double-digit positive.”
Additionally, a winter that prolonged into March and April caused a 1.3% fall in customer traffic. That forced Home Depot to put deep discounts on several seasonal products.
In the quarter ended April 29, the company said net income rose to $2.40 billion, or $2.08 per share, from $2.01 billion, or $1.67 per share a year earlier. Analysts had expected the company to earn $2.05 per share.
Revenue rose 4.4% to $24.95 billion from the previous year ago. But it was below the $25.15 billion analysts surveyed by Thomson Reuters.
Home Depot’s shares dropped 1.62% to close at $187.98 on Tuesday. On the session before the bell Wednesday, its shares were little changed as it was trading at $188.01.
The retailer said it expected to report diluted earnings of $9.31 a share in the 12 months ending January 2019. It is higher by 28% from the 2018 fiscal year.
On the other hand, it fell short of the $9.39 a share expected by analysts in a Thomson Reuters survey.
Slow Homebuilding Activity won’t drag down Home Depot
Recent data showed that US homebuilding activity may be slowing. Construction of single-family homes – the biggest share of the housing market – dropped 3.7% in March.
Furthermore, the data have fueled worries that rising mortgage and interest rates were weighing on construction activity and consumer spending.
But Menear eased some of those fears and said that “The US economy is strong and housing fundamentals continue to be supportive of our business … we do not expect interest rates to lead a slowdown in customer desires or demand.”
