Why Home Depot Stumbled on Earnings

Home Depot Inc. (NYSE: HD) reported third-quarter 2019 results before markets opened Tuesday. The home improvement store posted diluted net earnings per share (EPS) of $2.53 on revenues of $27.2 billion. In the same quarter last year, the company said it had EPS of $2.51 and revenues of $26.3 billion. Consensus estimates for the latest period had called for EPS of $2.52 and revenues of $27.53 billion.

Same-store sales rose 3.6% globally and 3.8% in the United States during the quarter. Net income slipped from $2.9 billion in the year-ago quarter to $2.8 billion.

The company’s revenue miss and revised forecast pounded the share price Tuesday morning. Home Depot revised its 2019 sales growth forecast from a prior level of 2.3% to about 1.8% and its same-store sales growth from a prior estimate of 4.0% to approximately 3.5%. The company stuck with its prior EPS growth estimate of about 3.1% to a full-year total of $10.03. The company noted that 2019 is a 52-week year compared to a 53-week 2018.

Analysts have forecast fourth-quarter sales of $26.03 billion and EPS of $2.17. Full-year estimates call for EPS of $10.13 and sales of $110.76 billion.

CEO Craig Menear said:

Our third quarter results reflected broad-based growth across our business, yet sales were below our expectations driven by the timing of certain benefits associated with our One Home Depot strategic investments. We are largely on track with these investments and have seen positive results, but some of the benefits anticipated for fiscal 2019 will take longer to realize than our initial assumptions.

The company’s One Home Depot strategy is being implemented to streamline a customer’s experience by unifying product availability, online access and physical delivery of customer orders. The five-year plan was introduced in 2017 and was credited with helping boost sales last year. This year, apparently, Home Depot has run into a few snags and expects those to continue into the fourth quarter.

The stock traded down about 4.5% in Tuesday’s premarket session, at $228.00 in a 52-week range of $158.09 to $239.31. The 12-month consensus price target on the shares was $237.28 before Tuesday’s report.