Home Depot Falls as Sales Outlook Slows and Housing Starts Lose Steam
Home Depot Inc. shares fell on Feb. 26 after the retailer said sales gains will start to cool off this year — mirroring a trend in the U.S. housing market.
Fourth-quarter sales also fell shy of analysts’ average estimate — a rare occurrence for the home improvement chain. The performance was hindered by cold, snowy weather, CEO Craig Menear said on a conference call.
“Investors were fearful of the sales miss,” said Seema Shah, an analyst for Bloomberg Intelligence. Home Depot rarely misses guidance, so that “was a little bit shocking.”
Home Depot has been buoyed for years by rising housing prices in the U.S. — homeowners are more likely to invest in improvements if they feel it will boost their home’s value. But there are signs that the market is cooling: Prices in 20 U.S. cities rose in December at the slowest pace in four years, according to the S&P CoreLogic Case-Shiller index of property values. If the trend continues, it could sap some energy from the Atlanta-based retailer.
The company’s shares fell as much as 3.7% to $182.92 in New York — the most since October. The stock had gained 11% this year through close Feb. 25, in line with the S&P 500.
Fourth-quarter earnings per share were $2.09, short of analysts’ average estimate of $2.16. Same-store sales — a key gauge of a retailer’s success — rose 3.2%, trailing the estimate of 4.5% from Consensus Metrix. Excluding the impact from weather, sales met expectations, Menear said.
Home Depot sees comparable-store sales growing 5% this year — just short of 2018’s rate of 5.2%. That rate would be the weakest since 2012. Even so, Shah said it was a “bullish” forecast and noted that the fourth quarter is not as meaningful as the spring selling season the company is about to enter.
The company took steps to bolster the stock, including an increase to its quarterly dividend by 32%, and a $15 billion stock buyback program, with about $5 billion in repurchases for the current fiscal year.
Home Depot joined a host of other U.S. retailers that posted disappointing sales recently. The results came amid a historic cold snap in the U.S., where it generates more than 90% of its sales, and a shutdown of the federal government.
