Home Depot Extends Winning Streak, Yet Wall Street Shrugs

  • Chain has now topped projections for 13 straight quarters
  • Sky-high expectations make it harder to please investors

David Schick, analyst at Consumer Edge Research, examines second-quarter results from Home Depot. He speaks with Bloomberg's Vonnie Quinn on 'Bloomberg Markets.' Schick, his family, and firm, do not own shares of Home Depot. (Source: Bloomberg)

Home Depot Inc. topped Wall Street’s profit estimates for a 13th straight quarter -- an enviable feat for many retailers -- but it elicited a ho-hum from investors.

After years of thriving during a broader retail slump, the home-improvement chain is having a hard time pleasing shareholders with its results. Even after sales grew faster than projected last quarter and the Atlanta-based company raised its forecast, the shares slipped less than 1 percent in Tuesday’s trading.

Home Depot is contending with sky-high expectations, along with concerns that a robust U.S. housing market -- the source of its growth streak -- may weaken. If home prices begin slipping, consumers will have less money to put toward renovations and less reason to shop at Home Depot.

For now, the company is in “rarefied air, given the current retail environment,” Scot Ciccarelli, an analyst at RBC Capital Markets LLC, said in a note.

The stock initially gained in early trading following the results, then moved lower. In regular trading, it fell as much as 3.9 percent to $148.26. The shares had gained 15 percent this year before Tuesday.

“This is not the first time where Home Depot has produced some really outstanding results and the stock has sold off,” Chief Financial Officer Carol Tome said in an interview. “I can’t tell you what’s happening with the market -- that’s not what I do for a living.”

Earnings in the second quarter rose to $2.25 a share, topping the $2.21 projected by analysts on average. Sales at stores open for more than a year -- a key benchmark for investors -- rose 6.3 percent. Analysts predicted growth of 4.9 percent, according to Consensus Metrix.

Higher Forecast

Home Depot raised its forecast for full-year earnings by 2 percent to $7.29 a share, which also topped estimates.

Strength in building materials in the U.S. and positive results from flooring companies, such as Lumber Liquidators, should bode well for home-improvement companies, according to Seema Shah, an analyst at Bloomberg Intelligence.

Big-ticket items -- including building materials -- have had high-single digit percentage growth from 2016, she said, citing data from the U.S. Census and SpendTrend.

Home Depot’s upbeat results contrasted with those of the department-store industry, which posted mostly lower sales in a wave of earnings reports last week. At Macy’s Inc., the market leader, same-store sales dropped 2.5 percent.

Home Depot has about 2,300 stores in the U.S., Canada and Mexico and employs more than 400,000 workers. Lowe’s Co., the company’s top rival, reports its results next week.

Many retailers are struggling to avoid being disrupted by Amazon.com Inc., an area where Home Depot has an edge. Building materials and other large items make less sense for e-commerce, and Home Depot also caters to contractors and other businesses -- rather than just consumers.

But the company is taking more orders online. Digital sales gained 23 percent last quarter, Tome said. Almost half of the time, customers who order online end up coming to a store to pick up the products. And often they end up buying something else, she said.

“We understand that the customer is changing the way he or she wants to shop,” she said.

The housing boom also shows no signs of letting up, Tome said.

“There’s a bit of a housing shortage,” she said. “And a housing shortage is good for us because that will continue those prices growing.”

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