Home Depot sales cool along with US real estate market

Cornelia Mascio
Febbraio 28, 2019

Strains in the USA housing sector emerged in the aisles of Home Depot, a store with a reputation for consistently delivering surprises to the upside for its investors.

Rising mortgages put a damper on Home Depot's earnings and sales for the fourth quarter, with Wall Street punishing the company's shares in premarket trading Tuesday. The retailer's online sales increased 22.7% as the company tries to compete with Amazon. It said both single and multifamily dwellings struggled previous year. During the past 12 months, sales have tumbled 8.5 per cent. And on Tuesday, the Commerce Department announced that the number of homes being built in December fell 11.2 per cent.

Prices for the benchmark 10-year U.S. Treasury gained ground, lowering yields to 2.65% from Monday's 2.67%.

The Atlanta-headquartered retailer also projected full-year earnings below estimates, forecasting $10.03 per share, against expectations of $10.26.

'A material slowdown in the housing market - where both sales and prices have been under pressure for some time - has stymied demand for home improvement products.

Investors were "unimpressed" by the Home Depot's outlook, said GlobalData Retail Managing Director Neil Saunders. Finally, Northern Trust Corp boosted its stake in shares of Home Depot by 2.1% in the 4th quarter. The home improvement retailer reported $2.25 earnings per share (EPS) for the quarter, topping the Thomson Reuters' consensus estimate of $2.16 by $0.09.

The current quarter was also nicked by a one-time charge or 16 cents a share.

Revenue climbed to $26.49 billion, from $23.88 billion, with the extra week adding approximately $1.7 billion in sales. But that too, was short of forecasts.

J.M. Smucker Co rose about 6 percent after the packaged food maker reported quarterly sales above Wall Street estimates. In the US, same-store sales increased 3.7 per cent.

Comparable-store sales are a key indicator of a retailer's health because it excludes volatility from stores that were recently opened or closed.

Its profit guidance for 2019 issued Tuesday was for US$10.03 a share, which is also below Wall Street projections for US$10.26.

Home Depot executives, however, pointed to upbeat statistics for the home-improvement industry including American's rising equity in their homes and the age of USA homes.

"Looking ahead, it would be logical to take a more negative stance on Home Depot's fortunes mainly because it is up against some tough prior year numbers and a somewhat slower economy", Saunders said. It also forecast strong sales growth of about 3.3 per cent and announced a US$15-billion stock buyback program. The performance was hindered by cold, snowy weather, CEO Craig Menear said on a conference call.

More concerning to investors is the company's forecast of 2019 same-store sales growth of 5%.

Home Depot sees comparable-store sales growing 5 per cent this year - just short of 2018's rate of 5.2 per cent. Bank of America lowered shares of Home Depot from a buy rating to a neutral rating and decreased their price objective for the stock from $219.00 to $195.00 in a report on Friday, November 16th.

Total sales for the entirety of fiscal 2018 were $108.2 billion, an increase of 7.2% from fiscal 2017.

Shares of Home Depot Inc. sank 3.3% in premarket trade after disappointing fiscal fourth-quarter results, enough to be blamed for almost half of the Dow Jones Industrial Average's selloff ahead of the open.

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