Home Depot (HD) crushed first-quarter estimates and raised its full-year guidance, as customers of the home improvement retail giant paid an extra 2.4% per visit, or an average $60.03 during the period, the company said Tuesday.
But its shares fell early on the stock market today after Chief Financial Officer Carol Tome told analysts on the earnings call that sales at stores open at least a year fell from 10.2% in February to 6.7% in March and then to 4.3% in April. Home Depot stock stayed down and ended the trading day off 2.5% to 132.
“It does dovetail with a bit of a spending slowdown we saw at a number of retailers that pointed to April being a slower month,” Retail Metrics President Ken Perkins told IBD.
Home Depot is more insulated from the Amazon.com (AMZN) effect than other retailers, such as apparel chains, Perkins said. So its slowing same-store sales at outlets open more than a year aren’t as much of a red flag as they are for top chains like Macy’s (M), Nordstrom (JWN), Kohl’s (KSS) and Gap (GPS). Those four retailers reported dismal results last week, sparking a sell-off in the sector.
Perkins likes prospects for Home Depot and rival Lowe’s this year.
“We visited a number of retailers including Home Depot throughout the spring and they and Lowe’s (LOW) were the busiest stores we visited,” Perkins said.
Home Depot’s adjusted first-quarter earnings of $1.44 a share were up 24.1% year over year, according to figures provided by Thomson Reuters. Revenue grew 9% to $22.76 billion amid continued strong housing market growth, favorable spring weather and sustained consumer spending.
Wall Street expected $1.36 earnings per share and $22.39 billion in revenue for the fiscal quarter ended May 1.
Stronger Than Expected
Home Depot Chief Executive Craig Menear said in a press release that it was a “stronger-than-expected start to the year” and noted it came in “a quarter marked by week-to-week demand spikes caused by weather variability.”
Home Depot raised its 2016 earnings view to $6.27 a share, a penny above analysts’ forecasts. It also lifted its sales projection for the year to 6.3% growth to about $94.097 billion, topping estimates of $94.082 billion. The company also projects same-store sales — sales at outlets open more than a year — will be up about 4.9% for the year, though that would be below first-quarter same-store sales growth of 6.5%.
Shares initially fell more than 2% in morning trading, falling through their 50-day moving average. They recovered somewhat before tumbling even further by the close.
After consolidating for nearly three months, the company’s stock climbed above a 135.57 buy point on April 18 and rose to a fresh all-time high at 137.82 on May 10 before consolidating again.
Focus On Millenials
Jared Wiesel, partner at corporate consulting firm Revenue Analytics noted that the company is focusing on engaging millenials. For example, Home Depot is employing omni-media marketing that employs everything from print to digital.
“Their online sales were up 21.5% for the quarter, which is excellent,” Weisel said.
Wiesel said that some investors may be concerned that what would normally be early summer sales were pulled into the first quarter because of favorable weather, which could hurt second-quarter results.
“There could be an expectation that this quarter was so strong at the expense of future quarters,” Wiesel said.
Housing Starts High
Home Depot’s earnings came on the heels of the Commerce Department’s announcement on Monday that U.S. housing starts climbed a strong 6.6% to a seasonally adjusted annual pace of 1.17 million units, topping estimates of 1.13 million.
The government also revised March starts up a bit to a 1.10 million-unit rate from 1.09. The housing starts data and strong April retail sales indicate that economic growth is picking up momentum after getting off to a sluggish start in 2016.
“Our view of the macro environment remains consistent. We believe housing data indicates continued tailwinds for our business,” CEO Menear told analysts on an earnings call early Tuesday.
CFO Tome added: “We estimate weather driven demand positively impacted U.S. sales growth by approximately $250 million.”
Lowe’s (LOW) is set to announce first-quarter financial results early Wednesday. Analysts predict earnings per share will rise 21% to 85 cents and revenue should jump 5.1% to $14.87 billion. Shares lost 1.2% at the close.