Home Depot Results Mixed as Trump's Tariffs Weigh on Shares

(Bloomberg) -- Home Depot Inc. failed to fully rebound from a lackluster end to last year, with the company saying a calendar adjustment added to the drag from wet weather. Tariffs also weighed on the stock, with the company saying that a recent increase in duties isn’t included in its guidance.

• First-quarter same-store sales -- a key gauge of a retailer’s success -- rose 2.5%, trailing estimates of 4.3% compiled by Consensus Metrix. However, the company said without a calendar shift this growth metric would have been 330 basis points higher. First-quarter earnings per share rose to $2.27, topping projections of $2.18.

Key Insights

• Homeowners often spend more when home prices are rising because they view their properties increasingly as an investment. This trend has been in place since the recession, offering Home Depot a big boost, but there have been signs that the market is cooling off. On Tuesday, the company said the current housing backdrop led it to reaffirm its guidance for fiscal 2019.
• All the rain in February hurt the company’s performance, but “those sales are coming back as the weather improves,” Home Depot Chief Financial Officer Carol Tome said on a call with analysts. Falling lumber prices also weighed on sales. The company said a popular piece of wood is now being sold for more than 50% less than it was a year ago. If this deflation continues, it may reduce full-year revenue by $800 million, according to the chain.
• Same-store sales were dampened because of a quirk in the fiscal-year calendar, the company said. In accounting terms, last year contained 53 weeks and this year has 52 weeks. Total revenue rose 5.7% to $26.4 billion, meeting the average estimate.

Market Reaction

• Home Depot fell as much as 2.4% on Tuesday. The stock had gained 11% this year through Monday’s close.

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--With assistance from John Lauerman.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Jonathan Roeder, Eric Pfanner

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