Financial Performance

Home Depot Sales Hit by Slow Spring Spending

It was a "garden story" for the retailer in Q1 as severe winter weather weighed on sales of gardening supplies.
Matthew HellerMay 15, 2018

Home Depot shares dipped on Tuesday after the retailer reported a quarterly revenue shortfall that it attributed to a slow start to the key spring selling season.

For the first quarter, Home Depot’s same-store sales grew 4.2%, missing analysts estimates of 5.4% growth. Excluding the performance of its garden business, though, comparable sales rose 6.5%, executives said on a conference call following the release of earnings.

As CNBC reports, “Spring is the season when many shoppers buy gardening supplies and start home renovations, making it a key quarter for home improvement retailers.” But the quarter ended April 29 saw severe winter weather that hit Home Depot’s gardening business.

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“This clearly is a garden story for us,” CEO Craig Menear said.

Overall revenue rose 4.4% to $24.9 billion, compared to expectations of $25.15 billion, but earnings of $2.08 per share topped analysts’ estimates of $2.05 per share.

In trading Tuesday, Home Depot’s stock initially dipped as much as 2.1% but cut its losses to 1.3% after CFO Carol Tomé told investors on the conference call that comparable sales for May were “double digit positive.”

“We are pleased by the strength of our business despite a slow start to the spring selling season,” Menear said in a news release. “Outside of our seasonal business, we had solid results in all markets and categories and are seeing strong momentum in all lines of business during these first few weeks of May.”

The company reaffirmed its sales and earnings guidance for fiscal 2018, citing “a favorable housing and macroeconomic backdrop.” It predicts sales will rise roughly 6.5% and same-store sales will grow by about 5%.

Analysts at Jefferies expect shoppers will shift their gardening projects to the summer rather than abandon them. “Home improvement has been one of the strongest performing segments of retail, in part boosted by the recovery needed following severe weather over the past year,” CNBC noted.

Home Depot doesn’t expect to be adversely affected by higher mortgage rates. “With that comes higher home price appreciation and rising housing demand, which should drive home improvement spending,” Tomé said.