Home Depot Drops With Lowe’s as Analyst Cuts Estimates

Home Depot Inc. and Lowe’s Cos., the two largest U.S. home-improvement retailers, declined after a Deutsche Bank AG analyst lowered sales and profit estimates because of weak results at rivals.

Shares of Atlanta-based Home Depot slid 1.6 percent, while Mooresville, North Carolina-based Lowe’s dropped 1.4 percent.

Michael Baker, an analyst at Deutsche Bank in New York, cut earnings projections for both chains by 1 cent a share. Second-quarter profit at Home Depot may be $1.44 a share, while Lowe’s may come in at $1.02, he said today in a note. Baker continues to recommend buying Lowe’s shares and maintained his hold rating on Home Depot.

The cuts are due to weaker-than-expected results at Toano, Virginia-based Lumber Liquidators Holdings Inc., which yesterday lowered its forecast for profit this year to as much as $3 a share, from as much as $3.60. Its second-quarter same-store sales slid 7.1 percent. The shares plunged 22 percent today.

Sales at Home Depot and Lowe’s have been benefiting from rising housing values, which prompted people to spend more on fixing up their homes. That momentum waned in the beginning of the year when a prolonged and harsh winter forced people to put off renovations.

Missing Estimates

Both chains missed estimates for same-store sales in the first quarter. Lowe’s posted a 0.9 percent gain, trailing analysts’ projections of 5 percent. While Home Depot’s sales were better with an increase of 2.6 percent, they were also projected to advance 5 percent.

Home Depot said at the time that the lackluster performance was weather-related, not a slowdown in the housing recovery, and that sales had been improving.

“Many indicators in the housing market have softened over the last several months, leading to the question of whether this indicates that the housing recovery has run out of steam,” Chief Executive Officer Frank Blake said May 20 on a conference all with analysts. “As we parse the data from our own business, that is not what we see.”

Lumber Liquidators’ same-store sales have a 56 percent positive correlation to revenue at Home Depot since 2008 and a 57 percent correlation with Lowe’s, Baker said.

Tractor Supply Co., which sells some lawn and garden products, also posted second-quarter same-store sales that trailed analysts’ estimates, Baker said.