Home Depot cuts outlook citing tariffs, lumber prices

August 20, 2019 - 4:30 am

Home Depot cut its sales expectations for the year as lumber prices slid and the company braces for the potential impact of tariffs on its customers.

The Trump administration delayed most of the tariffs it planned to impose on Chinese goods last week and dropped others altogether, responding to pressure from businesses and growing fears that a trade war is threatening the U.S. economy.

Lumber prices are falling because of weakness on the home construction. The Commerce Department said Friday that the pace of U.S. home construction fell a sharp 4% in July. So far this year, housing starts have declined 3.1%.

Still, the company handily beat second quarter profit expectations with Americans capitalizing on falling mortgage rates.

The average rate on the benchmark 30-year loan is hovering at 3.60%, its lowest level since late 2016. A year ago the rate was 4.53%.

More Americans signed contracts to purchase homes in June, marking the second straight month of growth.

"We are encouraged by the momentum we are seeing from our strategic investments and believe that the current health of the U.S. consumer and a stable housing environment continue to support our business," CEO Craig Menear said in a prepared statement. "That being said, lumber prices have declined significantly compared to last year, which impacts our sales growth. As a result, today we are updating our sales guidance to account primarily for continued lumber price deflation, as well as potential impacts to the U.S. consumer arising from recently announced tariffs."

The Home Depot Inc. now anticipates 2019 sales to increase about 2.3%, down from its prior expectations of a 3.3% rise. The chain still expects annual per-share earnings to climb approximately 3.1% from last year, to $10.03.

For the three months ended Aug. 4, Home Depot earned $3.48 billion, or $3.17 per share. That's a dime better than Wall Street had expected and better than last year's $3.51 billion, or $3.05 per share.

Revenue for the home improvement chain rose to $30.84 billion, from $30.46 billion. Wall Street was calling for $31 billion.

Comparable store sales, a key gauge of a retailer's health, increased 3%. In the U.S., those sales were up 3.1%.

Shares rose slightly before the market opened Tuesday.

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Portions of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on HD at https://www.zacks.com/ap/HD

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