Home Depots Sales Miss Suggests Cooling U.S. Housing Market

Home Depot Inc.’s lackluster results last quarter are adding to concerns the U.S. housing market is slackening. The company blamed cool weather at the start of spring, its biggest selling season.

Revenue and comparable-store sales at the world’s largest home-improvement retailer missed analysts’ estimates, although profit beat projections for the 16th-straight quarter.

Home Depot’s fortunes are so tightly intertwined with the housing market that they are often viewed as a proxy for the sector. The rationale is simple: If Americans feel like their properties are rising in value, they’ll spend more fixing them up.

But prices have been sagging in some parts of the U.S. and mortgage rates have risen. Labor shortages have also slowed the building of new homes. While that can maintain demand for existing ones, it often limits the number of first-time homebuyers.

Rare Miss

Home Depot's revenue missed the consensus estimate for only the fourth time in five years

Source: Bloomberg

Comparable adjusted revenue is the reported value with extraordinary items factored out to make it similar to analysts' estimates

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Home Depot shares fell as much as 3.4 percent to $184.58 in premarket trading. They had climbed 22 percent in the past year through Monday’s close.

The retailer’s quarterly results come amid mixed signals from U.S. housing data. Pending home sales rose less than expected in March. Meanwhile, new home purchases hit a four-month high during the same period.

The company said that besides outdoor goods, its business last quarter was solid across other categories. And sales have been “strong” so far this month as temperatures warmed up, according to Chief Executive Officer Craig Menear.

As a sign of confidence that nothing had fundamentally changed its outlook for the health of the housing market, the company reiterated its previous forecast for annual revenue of about $107.5 billion and profit of $9.31 a share.

Revenue rose to $24.9 billion in the period that ended April 29, missing the average projection of $25.2 billion. Earnings amounted to $2.08 a share, Atlanta-based Home Depot said. Analysts projected $2.05.

Sales at stores open for more than a year — a key benchmark for investors — rose 4.2 percent. That missed analysts’ prediction for growth of 5.6 percent, according to Consensus Metrix.

In December, Home Depot laid out long-term goals of boosting annual sales to as much as $120 billion by 2020, from $100.9 billion last year. That would equate to revenue growth of 6 percent a year. It also plans to boost capital expenditures to bolster its supply chain, cut checkout times and train employees.

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