Home Depot Falls as Slowing Growth Overshadows Forecast Hike

Is Home Depot a Sign of Good Things to Come for U.S.?
  • Same-store sales gains weakened from February through April
  • Chain raises annual sales, profit guidance after first quarter

Home Depot Inc. fell after sales growth slowed as the first quarter progressed, overshadowing a forecast increase and profit that beat analysts’ expectations.

Comparable-store sales rose 4.3 percent in April, down from 6.7 percent growth in March and a 10.2 percent gain in February, Chief Financial Officer Carol Tome said on the company’s first-quarter earnings conference call Tuesday.

That deceleration sparked fears that homeowners may be pulling back on renovations after years of rising housing prices fueled a remodeling boom. Yet Tome said the company continues to see “strength” in the U.S. housing market and that early data on second-quarter demand gave the chain confidence to increase its projections, she said.

“We lifted guidance, which means we’ll have more sales growth than we thought at the beginning of the year,” Tome said in an interview. “A day of trading is not a reflection of our business trend.”

After initially rising in early trading, the shares slipped as much as 2.9 percent to $131.35 in New York, the biggest intraday decline since Feb. 8. Home Depot had gained 2.3 percent this year through Monday. For a quick wrap of the analyst commentary on Home Depot today, click here.

Profit Beats

Profit last quarter rose to $1.44 a share, the Atlanta-based company said in a statement. Analysts estimated $1.35, on average. Sales climbed 9 percent to $22.8 billion, topping analysts’ $22.4 billion projection.

“When you look at the volatility out there in retail sales, we’re not seeing it here,” said David Schick, senior retail analyst for Consumer Edge Research. “There continues to be strong demand for home improvement.”

Home Depot said revenue may increase 6.3 percent year, up from a previous projection for growth of as much as 6 percent, which still would be slightly higher than its average growth rate of the past four years. Profit will be about $6.27. Home Depot had previously forecast earnings of $6.12 to $6.18, and analysts estimated $6.22.

Raised Expectations

Still, high expectations made it hard for the chain to impress investors, with suppliers such as flooring-maker Mohawk Industries Inc. posting solid quarters, according to Seema Shah, an analyst for Bloomberg Intelligence. Investors also may have concerns about slowing U.S. growth. Home Depot’s domestic same-store sales rose 7.4 percent in the first quarter, slower than the 8.9 percent gain in the fourth quarter, she said.

“The business is solid,” Tome said. “We lifted. We didn’t take guidance down. Other retailers have been taken guidance down. I know of very few retailers who are lifting. We lifted because of the underlying strength in the quarter and what we see in the business.”

Overall sales at Home Depot’s stores open for more than a year -- a key benchmark for investors -- rose 6.5 percent. That topped the 4.4 percent average estimate of analysts surveyed by Consensus Metrix.

Weather Effect

Weather often affects Home Depot’s sales. The warm winter in much of the U.S. allowed homeowners to complete more outdoor projects in December, which boosted sales by $100 million in the fourth quarter. Chief Executive Officer Craig Menear said in Tuesday’s statement that weather variability resulted in “week-to-week” demand spikes in the first quarter, and executives on the call put the total boost to first-quarter sales at $250 million, driven by a warm February.

Home Depot’s results indicated that Americans kept taking on large projects last quarter. The company’s average sale rose 2.4 percent to $60.03. The number of transactions increased 4.1 percent to 374.8 million.

The housing market was sending positive signs heading into the home-improvement retailers’ reports. Home prices climbed in 87 percent of U.S. metro markets in the first quarter, according to the National Association of Realtors. The median price of an existing single-family home was $217,600 in the first quarter, up 6.3 percent from a year earlier.

Investors will get more insights into the strength of the home-improvement market on Wednesday, when Lowe’s report its first quarter. Analysts expect same-store sales to gain 4 percent.

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