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Key Takeaways From Home Depot's 2nd-Quarter Earnings

The Home Depot Inc. (NYSE:HD) released its second-quarter financial results before the opening bell on Aug. 20. While the company's earnings exceeded analysts' expectations, its revenue failed to impress.

Earnings highlights

The world's largest home improvement retailer said adjusted earnings per share stood at $3.17, which topped estimates of $3.08. Revenue of $30.8 billion fell short of expectations of $30.99 billion.

Comparable store sales surged 3% in the reported quarter, but was down from the projected growth of 3.5%.

Customer transactions totalled 455.5 million, which was flat compared to the prior-year quarter. The average ticket inched up 1.7% to $67.31. Sales per square foot rose 1.1% year over year to $509.55.

Reflecting on the company's performance, CEO Craig Menear said:

"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."

Declining lumber prices a concern

Lumber prices are falling due to weak housing market conditions. As per the Commerce Department, the pace of U.S. home construction declined 4% in July. Housing starts are down 3.1% year to date.

The Atlanta-based company said its first-quarter sales surge was adversely impacted by $200 million owing to low lumber prices.

If lumber prices do not recover, the company's annual sales can be impacted by an additional $600 million.

Lumber makes up approximately 8% of the company's total sales.

Looking forward

The home improvement retailer has provided guidance for full-year 2019.

The company doesn't expect to record robust earnings growth on account of the slump in lumber prices as well as the potential impact of tariffs on consumer spending. The company anticipates earnings per share to grow 3.1% to $10.03.

Home Depot sees 2.3% growth in sales and roughly 4% growth in comps.

Disclosure: I do not have any positions in the stocks mentioned.

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This article first appeared on GuruFocus.