Taking Wall Street by surprise, the Home Depot says its U.S. sales rose 3.9% in the first quarter, lower than many expected. And while it re-affirmed its forecasts for the full year, blaming the slow start to a late spring, some observers worry that the results could spell trouble for the recently booming housing market.
For its fiscal first quarter, the Atlanta-based retailer says sales climbed 4.4% to $24.9 billion, compared to the same period a year ago. Same-store sales rose 4.2% overall, but just 3.9% in the United States. Observers had expected gains of 5.5%. Net earnings, which beat analyst expectations, rose to $2.4 billion, compared with $2 billion in the comparable period.
In announcing the results, CEO and Chairman Craig Menear says the weakness occurred in spring-related sales. “Outside of our seasonal business, we had solid results in all markets and categories and are seeing strong momentum in all lines of business during these first few weeks of May,” he says in the announcement. “These trends, as well as a favorable housing and macroeconomic backdrop, give us confidence to reaffirm our sales and earnings guidance for fiscal 2018.”
Despite pressure on its stock as a result, some don’t seem worried and believe those sales can be made up later. “We believe the company navigated well in a challenging beginning to the spring selling season,” writes Seth Basham, an analyst who follows the company for Wedbush Securities. While Home Depot’s foot traffic fell 1.3%, he writes the average transaction size rose 5.8%, likely due to “a mix shift away from lower-ticket lawn and garden products.”
Others aren’t so sure. “Some of these will be recaptured, possibly helping the next quarter, but many more impulse driven buys are likely to have been lost,” writes Neil Saunders, Managing Director of GlobalData Retail, in his comment on the results. “Our own data show that consumers delayed home improvement projects such as outdoor repairs and garden maintenance. The sale of summer leisure products, like BBQs and garden furniture, was also pushed later.”
He also points out concerning data in the housing market, which seems to be spooking some investors. The National Association of Realtor’s recently said its Pending Home Sales Index slipped 0.8% from February, which “inevitably took the shine of Home Depot's revenue.”