Home Depot Could Be a Warning Shot

Alan Penny

19 November 2019

3 min read

The Home Depot logo

  • Home Depot releases less-than-impressive earnings
  • Online sales not delivering
  • Could be warning of greater troubles

The Home Depot released its earnings on Tuesday in what can only be described as a miserable report. The Home Depot is the largest US home-improvement chain, which has risen in value almost 40% this year up until the Tuesday session.

In premarket trading, it had already lost 4.5% due to disastrous earnings, but what’s perhaps even more concerning is its bleak outlook.

The announcement

The announcement came out premarket on Tuesday, with same-store sales rising 3.6% in the third quarter, below the anticipated 4.7% increase. While still growing, it does show a miss as far as anticipated strength in the market. As a result, the stock is showing disappointment.

The net income fell to $2.77 billion, or $2.53 per share, in the third quarter from the previous $2.87 billion, or $2.51 per share. Analysts on Wall Street were expecting earnings of $2.52 per share, which was a disappointment as well.

Online a disappointment

One of the biggest issues was the service that The Home Depot offers, known as “click and collect”, where customers can order supplies online and then simply pick them up at the store. This has disappointed investors quite drastically. It was one of the ways in which The Home Depot was trying to lure customers away from the smaller Lowe’s, its biggest rival in the United States.

The Home Depot has invested quite heavily in its online business, adding automated lockers in stores for shoppers who would rather come in and pick up a bundled order than wait for delivery on their job site.

The goal was to increase its sales by 6%, or $120 billion by 2020, while keeping its operating margins roughly the same

Originally, The Home Depot had used the online push as a way to shorten its delivery times. It has also worked on making its website more user-friendly to propel this part of the business. The goal was to increase its sales by 6%, or $120 billion by 2020, while keeping its operating margins roughly the same.

The Chief Executive Officer Craig Menear stated: “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.”

Knock-on effect

Lowe’s had also seen a loss during premarket trading, down nearly 3% in sympathy. Because of this, the question will be whether or not this will have a ripple effect through Wall Street and anything home-related.

After all, The Home Depot is thought of as a proxy for what’s going on in the housing market. That’s because it is quite common for new home buyers to invest heavily in home improvements. Those who are willing to stay in their current homes do the same for improvements.

Beyond that, a lot of contractors will buy from both of these companies when doing home improvements and additions. The housing market and its various subsidies are a huge driver of the US economy. People will be watching numbers out of both these companies as they give a “peek under the hood” when it comes to one of the biggest drivers of growth in the United States.

Written By
Alan Penny

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