Home Depot's sluggish sales may be warning sign for housing

Some cracks may finally be starting to show in the foundations of what has been a very strong housing market.H...

Posted: May 15, 2018 2:06 PM
Updated: May 15, 2018 2:06 PM

Some cracks may finally be starting to show in the foundations of what has been a very strong housing market.

Home Depot reported quarterly sales that missed forecasts Tuesday and the CEO specifically cited "a slow start to the spring selling season."

Shares of Home Depot fell about 2% in early trading on the news. Rival Lowe's, which will report its first quarter earnings on May 23, slipped 1% as well.

Home Depot's same-store sales, which measure how well locations open at least a year are doing, rose 4.2% in the quarter. But Wall Street was expecting a 5.4% jump. This was the first time Home Depot failed to top analysts' estimates in nearly two years.

Rising mortgage rates could be a problem for the company. The yield on the 10-year US Treasury bond, a key benchmark for mortgage rates, is back above 3% and is at its highest level since July 2011.

If mortgage rates continue to climb, that could make it more difficult for people to buy a house -- which would not be great news for Home Depot.

And Wall Street is starting to worry that the housing boom could be coming to an end too. Shares of big builders Lennar, Toll Brothers, KB Home and D.R. Horton all dipped Tuesday and they are each down between 10% and 20% so far this year.

Related: Here's what's killing Sears

The weather was also a factor in Home Depot's disappointing quarter.

While many retailers often trot out bad weather as an excuse for poor sales, it's a legitimate concern for a company that sells building products to people constructing homes outside.

The word "weather" was mentioned 14 times during Home Depot's conference call with analysts.

Home Depot cited "extreme winter weather" as something that hurt gardening supply sales. Sales in the northern part of the US and Canada were particularly weak.

The sluggish sales growth is particularly surprising since Home Depot has been one of the better-performing retailers for some time now.

Home Depot has outperformed the Dow and the SPDR S&P Retail ETF, by a wide margin for the past five years. Home Depot is a Dow component.

The company has benefited from the fact that many prospective home sellers have been looking to make improvements on their homes in order to help boost the sale price. Strong demand for new homes has helped fuel Home Depot sales too.

Related: Bed Bath & Beyond is in serious trouble

Home Depot also continues to be part of a small group of so-called "Amazon-proof" retailers.

Home Depot shoppers, particularly professional builders, are more likely to go to a store for plywood, lumber, concrete and other critical construction materials so they can actually see and touch them as opposed to simply buying them online from Amazon.

And when customers are buying online, many prefer to go to the store to pick up the products. Home Depot's online sales rose 20% in the quarter.

So Home Depot's biggest challenge going forward isn't likely to be Amazon. It's rising mortgage rates.

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 296154

Reported Deaths: 6764
CountyCasesDeaths
DeSoto19700230
Hinds18851392
Harrison16736281
Rankin12757265
Jackson12623228
Lee9694161
Madison9480203
Jones7990147
Forrest7234138
Lauderdale6837226
Lowndes6032140
Lamar589680
Lafayette5740113
Washington5220130
Bolivar4616124
Oktibbeha441593
Panola431995
Pearl River4178131
Warren4134115
Pontotoc410571
Marshall403592
Monroe3990127
Union396174
Neshoba3817169
Lincoln3552104
Hancock348975
Leflore3380118
Sunflower318986
Tate303174
Pike301296
Scott294570
Alcorn292263
Yazoo290565
Itawamba290175
Coahoma281169
Tippah279265
Copiah278758
Simpson276280
Prentiss270258
Wayne254341
Leake252871
Marion252778
Covington249580
Grenada247878
Adams234678
George232145
Newton230852
Winston221877
Jasper213645
Tishomingo212665
Attala206669
Chickasaw201453
Holmes182370
Clay179251
Stone172429
Tallahatchie171239
Clarke169371
Calhoun158028
Smith153033
Yalobusha145036
Greene127833
Walthall124340
Noxubee122831
Montgomery122639
Perry122135
Lawrence120321
Carroll118625
Amite111734
Webster110832
Jefferson Davis102231
Tunica99323
Claiborne98829
Benton93824
Humphreys92927
Kemper90323
Quitman77414
Franklin76119
Choctaw69817
Jefferson62727
Wilkinson62426
Sharkey49117
Issaquena1676
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Alabama Coronavirus Cases

Cases: 497154

Reported Deaths: 10029
CountyCasesDeaths
Jefferson714001387
Mobile36252736
Madison32573462
Tuscaloosa24289414
Montgomery22708519
Shelby22112215
Baldwin19856285
Lee15021155
Calhoun13755288
Morgan13742252
Etowah13379320
Marshall11439210
Houston10110262
Elmore9451185
Limestone9413136
St. Clair9003225
Cullman8979182
Lauderdale8610212
DeKalb8486175
Talladega7582165
Walker6571259
Jackson6542103
Autauga631391
Blount6229127
Colbert5998120
Coffee5259103
Dale4657107
Russell406433
Franklin399778
Covington3989106
Chilton3891100
Escambia378772
Tallapoosa3613143
Clarke343953
Chambers3423111
Dallas3419142
Pike293372
Marion288895
Lawrence284683
Winston258668
Bibb245960
Geneva240270
Marengo238357
Pickens225055
Barbour212951
Hale211969
Fayette201357
Butler201166
Henry182941
Cherokee177739
Monroe166639
Randolph164640
Washington156635
Macon147243
Crenshaw146254
Clay145554
Cleburne139741
Lamar133733
Lowndes132551
Wilcox122525
Bullock117236
Conecuh107024
Perry105927
Sumter99432
Coosa89624
Greene88532
Choctaw55123
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