Home Depot Warns on Sales, Lumber Prices -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 21, 2019).

Home Depot Inc. (HD) lowered its sales forecast and warned that falling lumber prices -- as well as the potential effects of tariffs on U.S. consumers -- could weigh on growth.

The home-improvement retailer said fiscal 2019 sales growth would increase by 2.3%, down from its previous guidance of 3.3%. Same-store sales were projected to grow by about 4%, a percentage point lower than its previous forecast. The company affirmed its earnings guidance, seeing per-share earnings growth of about 3.1%.

Lower lumber prices, crimping what Home Depot (HD) can charge customers, have resulted in about $340 million in lost revenue from a year ago, Chief Financial Officer Carol Tomé said on a call with analysts on Tuesday. Meanwhile, the volume of lumber sold has increased, she said.

The price of lumber has been in a slump this year, pulled downward by a flood of supply after prices peaked last year, as well as a decline in home building due to bad weather in key construction markets.

The company also said the potential role of tariffs factored into its revised guidance. Chief Executive Craig Menear said in a conference call that Home Depot (HD) has to weigh the uncertainty around the tariffs and the potential " total impact on the customer."

Ted Decker, executive vice president of merchandising, said on the analysts call that he and his team have been negotiating with merchants and suppliers to limit the tariff effects.

The number of customer transactions was flat from a year ago, while the amount of money customers spent per visit rose 1.7%, and big-ticket transactions, or the number of comparable transactions over $1,000, climbed 3.7% from a year earlier.

"The consumer is healthy today," Ms. Tomé said in an interview, citing the number of customers and transactions Home Depot (HD) sees in-stores and online.

She said consumer confidence is high, wages are up and homeowners are spending right now.

Same-store sales -- a common metric in retail based on revenue at stores open at least one year -- rose 3%. Analysts expected a 3.3% rise.

Overall sales for the Atlanta, Ga., company rose 1.2% to $30.84 billion from a year ago, slightly behind analysts' estimates of $31 billion, according to FactSet.

Home Depot (HD) said its second-quarter earnings fell to $3.48 billion, or $3.17 a share, but topped analysts' projections of $3.09 a share.

Shares of Home Depot (HD) closed up 4.4% on Tuesday and has gained 26% this year.

The company has made a number of investments to improve the in-store experience, particularly in its loyalty program for housing professionals, as well as enhancing its delivery, pick up and e-commerce capabilities and expanding its merchandise offerings to include such items as home décor and DIY projects. Expenses rose 1.3% in the quarter.

Write to Kimberly Chin at kimberly.chin@wsj.com

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