Home Depot bets on Spring recovery after disappointing earnings

Home Depot is anticipating a Spring sales boom, despite posting disappointing fourth quarter earnings on Tuesday, which were partly tied to bad weather.

Ticker Security Last Change Change %
HD THE HOME DEPOT, INC. 400.61 -6.21 -1.53%
I:DJI DOW JONES AVERAGES 34483.72 -652.22 -1.86%

While shares of the Dow member dropped on the results, company executives are preparing for a rebound.

In anticipation of the sales bump that warmer temperatures could bring, Home Depot is continuing to invest heavily in improvements to its brick-and-mortar locations to make it easier for customers to order online and pick-up in-store, as well as its e-commerce platform.

The firm previously said it planned to allocate as much as $1.2 billion in the next few years to also improve its supply operations. Home Depot also recently invested in package delivery firm Roadie as part of a $37 million funding round, the startup said on Monday.

The optimistic outlook comes amid a tepid housing market, which executives at the Atlanta-based retailer say had no impact on its financial performance in the three months through Feb. 3. Home sales in January were down 8.5 percent year-over-year, the lowest since November 2015, according to the National Association of Realtors.

Instead, inclement weather across the U.S. led fewer homeowners to pursue exterior improvement projects, resulting in a 0.85 percent sales decline, according to Home Depot CFO Carol Tomé.

“We saw great performance in areas that had good weather,” she told investors. “We’re not seeing any impact to our performance in a negative way because of the housing environment.”

One significant revenue stream Home Depot is banking on is improvement to properties that are more than 40 years old, which account for 52 percent of all U.S. homes, the company says.

“Spend for homes that are 40 years and older is 30 percent greater than spend on homes less than 10 years,” Tomé said.

Executives say sales to home improvement professionals grew faster than Home Depot’s companywide average increase of 3.2 percent. They also outpaced sales to so-called “Do It Yourself” customers, who focused on interior projects amid the bad weather, according to CEO Craig Menear.

Ticker Security Last Change Change %
HD THE HOME DEPOT, INC. 400.61 -6.21 -1.53%

And despite new, double-digit tariffs on steel and aluminum imports, the introduction of “innovative items” is driving “much more significant” costs, Menear said.

“All the tariffs that have been put in-place to-date, we’ve managed through that without any issue,” he told investors, adding that the company is not factoring in any new duties to its 2019 outlook.

Amid continued negotiations on a trade deal with China, President Trump on Sunday said he would delay the imposition of new tariffs -- as well as a hike in the existing levies on $200 billion Chinese goods -- slated to go into effect on March 1.

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In the fourth quarter, Home Depot sales grew 11 percent to $26.5 billion, slightly less than analysts expected. Profits were up 31.8 percent to $2.3 billion, or $2.09 per share, also lower than Wall Street predictions.

In fiscal year 2019, Home Depot expects same-store sales to grow 5 percent and profits to grow 3.1 percent, to $10.03 per share.