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Home Depot misses 3Q sales expectations, slashes guidance

Home Depot (HD) missed top-line expectations in the fiscal third quarter and lowered its guidance for the full year, as sales results in the company’s home market fell short of expectations.

The nation’s largest home improvement retailer said impacts from tariffs, falling lumber prices and hiccups with its multi-year investment plan created a drag on results.

Here were the main results from the report compared to consensus expectations compiled by Bloomberg:

  • Earnings per share: $2.53 vs. $2.53 expected

  • Revenue: $27.22 billion vs. $27.5 billion expected

  • Comparable same-store sales: +3.6% vs. +4.6% expected

In the U.S. alone, closely monitored comparable same-store sales rose just 3.8%, well short of the 5.4% increase from last year. More than 90% of Home Depot’s revenue comes from its home market.

Home Depot said it now expects to see overall comparable same-store sales growth of 3.5% for the full fiscal year, down from its previous guidance for an increase of 4%. However, it reiterated guidance for full-year earnings per share of about $10.03.

Shares of Home Depot slumped 5.4% to $225.74 each as of 9:46 a.m. ET, after results were released before market open.

“Our third quarter results reflected broad-based growth across our business, yet sales were below our expectations driven by the timing of certain benefits associated with our One Home Depot strategic investments," CEO Craig Menear said in a statement. “We are largely on track with these investments and have seen positive results, but some of the benefits anticipated for fiscal 2019 will take longer to realize than our initial assumptions.”

This marks the second straight quarter that Home Depot has lowered its sales guidance.

Last quarter, Home Depot cut its outlook to reflect concerns over lumber price deflation and tariff impacts – two factors management reiterated as weighing on third-quarter results. During a call with investors Tuesday, CFO Richard McPhail said lumber price deflation negatively impacted comparable sales growth by more than 65 basis points during the quarter over last year.

A Home Depot employee is seen outside a store in Los Angeles, California March 17, 2015. REUTERS/Lucy Nicholson/File Photo

Tariffs on Chinese imports also took a bite out of Home Depot’s bottom line.

“As expected, during the third quarter, we saw increased costs arising from tariffs. Our merchants, finance and data analytics teams are doing an incredible job mitigating cost impacts in helping us evaluate our elasticities,” Ted Decker, executive vice president of merchandising, said during Tuesday’s call.

“While still early days, we continue to believe we can effectively manage tariffs,” he added. “However, we remain cautious on how tariffs could impact the consumer more broadly. Going forward, we will use our tools and analytics to help us continue to focus on being the customer's advocate for value.”

In August, Home Depot had said that the combination of tariffs on Chinese imports set to take effect Dec. 15, on top of those already in effect, could cost the company $2 billion.

Home Depot is in the midst of a multi-year, $11 billion investment plan to elevate its brick-and-mortar and online shopping experiences. The strategy, first introduced in December 2017, has been aimed at boosting the company’s competitive advantage against peers like Lowe’s (LOW), and as customers increasingly demand more digitally streamlined ordering options with online shopping and delivery.

A spokesperson for Home Depot told Yahoo Finance said some of its main recent investments have been in in-store upgrades, new online offerings for professional customers, and same day and next-day delivery. In the third quarter, Home Depot said sales from professional customers again outpaced do-it-yourself shoppers, as the retailer continued to capitalize on a strong repair-and-remodel market.

The results for the nation’s largest home improvement retailer come as recent economic data has signaled a pick-up in the domestic housing market, with lower interest rates favoring new-home buyers and builders. During a call with analysts, Menear described the current housing market as “healthy and stable.”

Prior to results, shares of Dow-component Home Depot had been on a tear and hit an all-time high Monday, as investors shrugged off the company’s earlier warnings for slower top-line growth.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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