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May 15, 2018

Home Depot’s sales chilled by long winter, with a thaw seen ahead

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The long and brutal winter didn’t just ruin your al fresco spring plans -- it also drove Home Depot Inc. to miss sales estimates at the start of what’s traditionally its biggest selling season.

But as temperatures heat up, revenue may too for the world’s largest home-improvement retailer, which is already seeing same-store sales in the double digits this month after missing analysts’ first-quarter predictions, according to Chief Financial Officer Carol Tome.

“The whole business is coming back,” with the arrival of warmer temperatures, she said Tuesday on a conference call. “As we look to the remainder of the year, we are encouraged by what we are seeing in housing and the broader economic environment.”

The company’s lackluster results last quarter added to concerns the U.S. housing market is slackening. Revenue trailed analysts’ estimates, although profit beat projections for the 16th-straight quarter. Shares fell as much as 2.6 per cent, the most in more than a month.

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HOUSING PROXY

Home Depot’s fortunes are so tightly intertwined with the housing market that they are often viewed as a proxy for the sector. The rationale is simple: If Americans feel like their properties are rising in value, they’ll spend more fixing them up.

But prices have been sagging in some parts of the U.S. and mortgage rates have risen. Labor shortages have also slowed the building of new homes. While that can maintain demand for existing ones, it often limits the number of first-time homebuyers.

The retailer’s quarterly results come amid mixed signals from U.S. housing data. Pending home sales rose less than expected in March. At the same time, new home purchases hit a four-month high during the same period and home prices climbed in 91 per cent of U.S. metropolitan areas in the first quarter.

As a sign of confidence that nothing had fundamentally changed its outlook for the health of the housing market, the company reiterated its previous forecast for annual revenue of about $107.5 billion and profit of $9.31 a share.

EARNINGS BREAKDOWN

Revenue rose to US$24.9 billion in the period that ended April 29, missing the average projection of US$25.2 billion. Earnings amounted to US$2.08 a share, Atlanta-based Home Depot said. Analysts projected US$2.05.

Sales at stores open for more than a year -- a key benchmark for investors -- rose 4.2 per cent. That missed analysts’ prediction for growth of 5.6 per cent, according to Consensus Metrix.

The company said that besides outdoor goods, its business last quarter was solid across other categories. Excluding the weak garden division, first-quarter same-store sales were up 6.5 per cent, the company said.

In December, Home Depot laid out long-term goals of boosting annual sales to as much as $120 billion by 2020, from US$100.9 billion last year. That would equate to revenue growth of 6 per cent a year. It also plans to boost capital expenditures to bolster its supply chain, cut checkout times and train employees.