The CEO also cited the impact of “consumer uncertainty.”
Home Depot (NYSE:HD) stock dropped about 4% on Tuesday after the leading home improvement retailer reported disappointing third quarter earnings and reduced its outlook for the full fiscal year.
Home Depot missed Q3 earnings estimates but slightly beat revenue expectations. However, its outlook was lowered as the company cited the continued impact of the lack of storms and consumer uncertainty.
- Revenue: $41.3B, up 2.8% year-over-year. This beat estimates of $41.2B.
- Net earnings: $3.6B, down 1.3% year-over-year,
- Earnings per share: $3.62, down 1.4% year-over-year.
- Adjusted EPS: $3.74, down 1.1% year-over-year. This missed estimates of $3.84 EPS.
“Our results missed our expectations primarily due to the lack of storms in the third quarter, which resulted in greater than expected pressure in certain categories. Additionally, while underlying demand in the business remained relatively stable sequentially, an expected increase in demand in the third quarter did not materialize. We believe that consumer uncertainty and continued pressure in housing are disproportionately impacting home improvement demand,” Ted Decker, chair, president and CEO of Home Depot said.
The company factors in certain sales results related to improvements necessitated by severe weather and hurricanes, which typically hit in Q3. But in this past quarter, there weren’t any major storms as there has been in years past.
Fuzzy outlook
Home Depot got a boost in the quarter with about $900 million in sales coming from its recent acquisition of GMS, which closed about 8 weeks into the quarter.
Also, its comparable store sales increased 0.2% in Q3 worldwide and rose 0.1% in the United States.
However, Home Depot’s outlook is not so bright, as the company lowered its expectations for the full fiscal year.
Specifically, Home Depot’s updated guidance reflects several key factors including its subpar third quarter performance, continued pressure in the fourth quarter from the lack of storm activity, ongoing consumer uncertainty and housing pressure, and the inclusion of GMS.
The headline number is the big box chain now expects earnings per share for the year to drop 6%, down from the previous guidance of 3%. Further, adjusted EPS is anticipated to decline 5% for the year, worse than the previous guidance of a 2% decline. In addition, the operating margin is projected to be 12.6%, down from 13%. The numbers may also be lower as Home Depot now only plans to open 12 new stores, as opposed to 13, as previously projected.
The sales projections are solid, helped by the GMS acquisition, which is expected to contribute $2 billion in incremental sales this year. Overall, total sales are expected to rise 3% year-over-year, which is slightly better than the previous 2.8% guidance. Also, comparable store sales will be slightly positive, similar to previous guidance.
Home Depot shares were down about 4% on Tuesday. Year-to-date, they are 11% lower. Analysts had expected weaker results this quarter as several lowered their price targets prior to earnings.
Still, the stock has a $450 price target, which suggests 29% growth. But it is not particularly cheap, trading at 24 times earnings.
