Home Depot Sales Cool Along with Real Estate Market
ATLANTA (AP) — Strains in the nation's housing sector emerged in the aisles of Home Depot in the last few months of 2018 and appear likely to carry over into this year.
In the fourth quarter, Home Depot fell short on profit, revenue and same-stores sales as rising real estate prices cast a chill over U.S. home sales.
The company does not expect its comparable-store sales growth, a key gauge of health in the retail industry, will be as strong this year as it was in 2018.
Shares fell 3 percent Tuesday at the opening bell as more disconcerting news about the U.S. housing market continued to roll out.
The number of homes being built in December plunged to the lowest level in more than two years, the Commerce Department reported Tuesday, a possible sign that builders anticipate fewer new homes will be sold this year.
Housing starts fell 11.2 percent in December from the previous month to a seasonally adjusted annual rate 1.08 million. It's the slowest pace of construction since September 2016.
Supply stores like Home Depot can often thrive when new home sales dip because people will buy existing homes, rather than new.
However, the National Association of Realtors said last week that sales of those homes dropped 1.2 percent in January to their worst pace in more than three years, signaling that the weakness in the U.S. housing market more broad.
Would-be homebuyers are increasingly priced out of the market as years of climbing prices and slim housing inventories put ownership out of reach for many Americans.
Those declines can ripple out to companies that sell materials like Home Depot and its rival, Lowe's, which slid in tandem with Home Depot in early trading.
"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," wrote Neil Saunders, managing director of GlobalData Retail. "In our view, this has likely affected the momentum of growth at Home Depot."
For the three months ended Feb. 3, Home Depot earned $2.34 billion, or $2.09 per share, for the three months ended Feb. 3. That's far short of the per-share earnings of $2.22 Wall Street was looking for, according to a survey by FactSet, though an extra week in the period helped push profit and sales higher.
A year ago the Atlanta home improvement retailer earned $1.78 billion, or $1.52 per share.
The current quarter was also nicked by a one-time charge or 16 cents per share.
Revenue climbed to $26.49 billion, from $23.88 billion, with the extra week adding approximately $1.7 billion in sales. But that that too, was short of forecasts.
Sales at stores open at least a year rose 3.2 percent, also missing Wall Street projections of a 4.5 percent bump. In the U.S., same-store sales increased 3.7 percent.
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 $10.03 per share, which is also below Wall Street projections for $10.26.
There was some optimism from Home Depot Inc. about the year ahead.
The company announced Tuesday that it is raising its quarterly dividend 32 percent to $1.36 per share. It also forecast strong sales growth of about 3.3 percent and announced a $15 billion stock buyback program.
Home Depot, under CEO and Chairman Craig Menear, has been steady in delivering outsized profits and revenue quarter after quarter and he voiced optimism about the current year on Tuesday.
"Our view on the health of the economy and the consumer, as well as the momentum of our strategic investments, supports our belief that we can deliver comparable sales growth of 5.0 percent in fiscal 2019," Menear said in a prepared statement.
That's better than the 4.3 percent increase that Wall Street analysts had been expecting, but it's not as strong as the 5.2 percent increase seen in 2018.
Despite the early sell-off in shares, industry analysts like Saunders were still impressed with the way Home Depot has operated in a worsening housing environment.
"Home Depot's comparable sales increases actually look even more respectable – in essence, they show the company is able to pull other levers to secure growth, even as economic fundamentals weaken," Saunders said.
Lowe's Companies Inc. reports earnings on Wednesday.