Home Depot (HD 185.64, -4.34, -2.28%) is trading lower today after reporting Q4 (Jan)
earnings results. Overall, the results were pretty good. However, most
investors are focusing on the disappointing same store comps: +3.2% overall and
+3.7% in US comps. In Q3 (Oct), they came in at +4.8% and +5.4% for US comps.
That was down from Q2 (Jul) comps of +8.0% and +8.1% comps in the US.
As you can see, the comps have been trending down the past couple of quarters. On the call, management explained that Q4 comps were hurt by unfavorable weather. HD was lapping tough comps as last year had hurricane related sales. Cold, snowy, and especially wet weather hurt results in all regions. FX also impacted comps as did price deflation on some products, such as lumber prices, which declined in Q4 relative to earlier in FY18. Ex-weather, business was in-line with expectations.
For the full year FY18, comps came in at +5.2%, including +5.4% comps in the US. For FY19, Home Depot is guiding to comps of approximately +5%, roughly the same comp growth as in FY18. HD seems generally favorable in the economic outlook in 2019.
On the positive side, Home Depot is thrilled with its paint business. Its Traeger grills are also doing very well, HD is the exclusive retailer for Traeger in the big box category. HD is also excited about the upcoming spring selling season. During Q&A, the company was asked about tariffs. HD has assumed nothing beyond what is in place. Tariffs to date have not been much of an issue.
From a broader sense, HD noted that home equity has more than doubled since 2011, the wealth effect bodes well for 2019. Also, 52% of homes are greater than 40 years old and spend for older homes is 30% greater than homes less than 10 years. HD has also been pushing its digital capabilities. It has been improving its website and app. This has increased digital traffic and conversion. Online sales now represent 7.9% of total sales.
In sum, investors are disappointed with the Q4 comps. It sounds like weather had a bigger impact than management was expecting. The good news is that HD seems positive on the spring selling season and FY19 comp guidance of +5% was good to see. On a final note, Home Depot’s rival, Lowe's (LOW), is set to report Q4 (Jan) earnings tomorrow in the pre-market. HD's results may be tamping down expectations a bit for Lowe's.
- OUR VIEW
- LEARNING CENTER