Home Depot Shares Drop On Q4 Earnings Miss, Prediction Of Weak 2019

Rising mortgages put a damper on Home Depot’s earnings and sales for the fourth quarter, with Wall Street punishing the company’s shares in premarket trading Tuesday. Home Depot also offered a bleaker-than-anticipated outlook for fiscal 2019.

Its shares were down more than 2 percent in premarket trading on the disappointing news.

Analysts said rising fears of a sustained housing slowdown continue to becloud Home Depot’s operations for the year. The U.S. Department of Commerce on Tuesday reported that housing starts plunged 11.2 percent in December 2018 to a seasonally adjusted 1.078 million units. It said both single and multifamily dwellings struggled last year.

Home Depot reported operating results for the quarter ended Feb. 3 that missed analysts’ expectations and were weaker than expected. It reported adjusted earnings per share at $2.09 compared to the expected $2.16.

Revenue of $26.49 billion fell short of the anticipated $26.57 billion, but was some 11 percent higher compared to $23.88 billion in Q4 2018. Same-store sales disappointed by increasing just 3.7 percent versus the expected growth of 4.5 percent.

Net income came to $2.34 billion ($2.09 per share) compared to $1.78 billion ($1.52 a share) year-on-year. Analysts had anticipated earnings of $2.16 a share, according to Refinitiv.

Chief Financial Officer Carol Tome said weather-driven demand reduced sales by 0.85 percent. Warmer weather in December has traditionally boded ill for home improvement, said analysts.

“Home Depot and Lowe’s face tough year-over-year comparisons in the fourth quarter that included hurricane-related sales and a strong year ago December that was negatively impacted by weather in 2018,” said Wells Fargo analyst Zachary Fadem in a note to clients.

“The housing market remains delicate,” he warned.

On the plus side, Home Depot said customer transactions rose 7.7 percent during the quarter, while the average shopper’s purchases increased 2.5 percent. Sales per square foot were up 4.9 percent.

This year presents formidable challenges for Home Depot and rival Lowe’s as confidence in the housing market begins to wane on account of rising mortgages.

For fiscal 2019, Home Depot said it expects to earn $10.03 per share, which is 23 cents short of analysts’ expectations, according to Refinitiv data. It projects a boost in same-store sales by 5 percent. Estimated revenue is expected to rise 3.3 percent.

By comparison, same-store sales climbed 5.2 percent and revenue was up 7.2 percent in fiscal 2018.

CEO Craig Menear said “the health of the economy and the consumer, as well as the momentum of our strategic investments” should help the retailer meet its new targets.

Analysts, however, see a tough road ahead for Home Depot.