Home Depot (NYSE: HD) Disappoints Investors On Earnings Day

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Home Depot (NYSE: HD), the US home improvement retailer worth $215 billion, reported its first-quarter results on Tuesday. Although profits beat investor expectations, sales didn’t and its stock took a 2% hammering.

What does this mean?

Growth in Home Depot’s first-quarter same-store sales (not including any new stores opened in the period) was slightly over 4%, below investors’ 6% forecast. A stubborn winter, including the northeastern snowstorms, meant that the company’s typical spring sales boost froze. Overall profits managed to exceed expectations thanks to a lower tax rate but then Home Depot’s hardly alone in getting that boost.

Why should investors care?

The bigger picture: The US housing market may be cooling.

Home repairs following the hurricanes that hit Puerto Rico and southern US states last year have been a boon for companies like Home Depot, as has a strong housing market (people are more likely to spend money renovating their homes when they think they’ve got a good chance of selling them at a higher price). But mortgage rates have started rising, making it more expensive for new buyers to climb onto the housing ladder. Fewer potential buyers could cause house prices to stagnate or fall. Home Depot thinks it can still achieve the targets it set at the start of the year regardless, suggesting it sees its recent slow growth as a mere blip.

For markets: Investors drop off shares at the Depot.

Home Depot’s first disappointing quarter in almost two years sent its shares sinking. Meanwhile, shares in Lowe’s – its main competitor – also fell by 1% on Tuesday, with investors likely worried that its own first-quarter report (due May 23) might also disappoint. Both companies have been considered largely immune to the viral spread of Amazon – but as bad weather kept shoppers from browsing for that perfect dusty pink paint color in-store, some analysts believe that more people might be buying a comfy sofa from their comfy sofas.

This article was originally published by finimize.

Expertise: financial modeling, mergers & acquisitions. Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights: - Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores. - Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets. Andy can be reached at andy@finbox.io or at +1 (516) 778-6257.

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