Home Depot Inc. (HD) - Get Report posted modestly stronger-than-expected third quarter earnings Tuesday but trimmed its full-year sales guidance as the world's biggest home improvement retailer said some of its investments won't pay off until 2020.
Home Depot said earnings for the three months ending on November 3 came in at $2.53 per share, around a penny ahead of the Street consensus forecast. Group revenues, Home Depot said, rose 3.4% from the same period last year to $27.2 billion, a figure that fell shy of analysts' forecasts of a $27.528 billion tally. Same-store sales, too, missed estimates, rising 3.8% compared to consensus of 4.7%.
Looking into the final months of 2019, Home Depot said it sees full-year sales rising 1.8%, down from a prior forecast of 2.3%, and sees comparable store sales growth of 3.5% compared to its earlier estimate of 4%. The group reaffirmed its full-year diluted earnings growth of 3.1% from last year's total of $10.03 per share.
"Our third quarter results reflected broad-based growth across our business, yet sales were below our expectations driven by the timing of certain benefits associated with our One Home Depot strategic investments," said CEO Craig Menear. "We are largely on track with these investments and have seen positive results, but some of the benefits anticipated for fiscal 2019 will take longer to realize than our initial assumptions."
"As a result, today we are updating our fiscal 2019 sales guidance, and we are reaffirming our fiscal 2019 earnings-per-share guidance," he added. "We are encouraged by the momentum in our business as we invest to extend our competitive advantages. I would like to thank our associates for their hard work and continued dedication to our customers."
Home Depot shares were marked 4.9% lower in the opening minutes of trading following the earnings release to change hands at $227.12 each, a move that could trim the stock's year-to-date gain to around 27%, compared to a 35% advance for the S&P 500 Home Improvement Retail index.
In a conference call with analysts following the earnings release, Home Depot said the impact of U.S. tariffs on China-made imports added to cost increases over the quarter, an noted it remains "cautious on how tariffs could impact the consumer more broadly."
U.S. retail sales rose just 0.3% last month, but missed economists' forecasts when automobile sales were stripped out and declines in clothing, furniture, electronics, and building materials were computed. Previous readings for August and September were revised to the downside, which, when set against flat wage growth and looming tariffs on the next round of China-made consumer goods set to kick-in on December 15, could bode poorly for the coming Christmas period.
"The 'control' measure (of U.S. retail sales data) which drives the non-durable goods component of overall consumers' spending, is on course to rise at an annualized rate of less than 3% in the fourth quarter, following a solid 6.3% increase in the third," said Ian Shepherdson of Pantheon Macroeconomics.
"This does not guarantee a sluggish performance from aggregate real consumption, because
it tells us nothing about spending on discretionary services or vehicles," he added. "The latter was stronger than we expected in October, but the big picture is unfavorable as financing conditions tighten."