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Home Depot's stock dropped

Image source: MvanCaspel, B Calkins, Birgit Reitz-Hofmann - Shutterstock

What's going on?

Perhaps the slump in US retail sales in December wasn’t a blip after all: on Tuesday, Home Depot reported results for November, December, and January that fell short of investors’ expectations.

What does this mean?

The all-American home improvement retail chain surprised investors with weaker-than-forecast quarterly sales of things like lawnmowers and drills – and that fed through to lower-than-expected profit, too. Wet weather copped a share of the blame, with would-be-DIYers apparently putting off their (relatively Amazon-proof) projects until things cleared up.

What’s more, Home Depot’s growth expectations for 2019 also came in lower than predicted – in stark contrast to its buoyant mood three months back. Even a dividend increase and a fresh $15 billion share buyback program couldn’t stop investors knocking 2% off the company’s share price.

Why should I care?

For markets: Home Depot’s fortunes are tied to the housing market.

Home Depot makes 90% of its sales in the USA, according to FactSet. And when houses there are changing hands at a brisk pace, homeowners are likely to splash on sprucing up their property. But data out on Tuesday made for sober reading: the number of US homes being built in December was the lowest monthly total in over two years. Although house price and mortgage rate increases have slowed of late, things still seem expensive enough to put buyers, homebuilders, and would-be-bricoleurs off.

Zooming out: Retailers can quickly go from riches to rags.

There was some slightly brighter news across town on Tuesday. After warning in January that its profit would be sleighed by a very unmerry Christmas, department store chain Macy’s revealed annual results that exceeded investors’ drastically reduced expectations (average profit predictions were 5% lower, according to FactSet). The stock rose 2% after Macy’s acknowledged its issues and promised a major overhaul of its supply chain, inventory system, and bloated senior management structure. Despite some recent successes on the restructuring front, converting ecommerce proselytes back to the old multi-storey shopping gods is easier said than done…

Originally posted as part of the Finimize daily email.

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