What's going on?
Investors were left out in the cold after home improvement retailer Home Depot reported weaker-than-expected quarterly sales growth on Tuesday, as well as a dilapidated forecast for the rest of 2019.
What does this mean?
Home Depot’s third-quarter sales in existing stores grew 3.6% compared to the same time last year. But that was lower than the almost-5% growth investors had forecast, and it led to lower revenue than predicted. The company’s forecast for the rest of the year, meanwhile, crumbled beneath investors’ feet: it now thinks it’ll grow annual sales by 1.8% from last year, rather than the 2.3% growth it’d previously promised. That’s the second time in a row Home Depot’s lowered its earnings forecast…
Why should I care?
For markets: Deadwood.
If Home Depot had blamed its lower forecast on penny-pinching customers, investors – even those who don’t own Home Depot’s stock – might’ve been encouraged to ditch other retailers’ shares. But the company instead pointed the finger at falling lumber prices, which limit how much it can charge for its wooden wares. Its investors reckoned with this year’s lower earnings and sold the company’s stock on Tuesday, sending it down 6%. Rival Lowe’s will report its own third-quarter update on Wednesday, and investors – likely anticipating similarly bad news – pre-emptively sold its shares too: they fell 2% on Tuesday.
The bigger picture: Gimme shelter.
When houses are being bought and sold at a brisk pace, homeowners are likely to splash out at Home Depot and Lowe’s on sprucing up their property. But housing data released this week showed the confidence of single-family homebuilders declined this month. Sales of new and existing homes, meanwhile, have been falling despite lower mortgage rates – which make borrowing cheaper and should therefore encourage homebuying. Still, the number of new houses being built is growing (albeit slower than predicted), which might mean some rising demand for Depot and co’s products.