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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: 143879

Reported Deaths: 3676
CountyCasesDeaths
DeSoto952799
Hinds9520193
Harrison6801105
Jackson6043116
Rankin521996
Lee477094
Madison4595102
Forrest360685
Jones341687
Lauderdale3340142
Lafayette312047
Washington3043106
Lamar273849
Bolivar237583
Oktibbeha237460
Lowndes227562
Neshoba2170113
Panola210347
Marshall206547
Leflore200389
Pontotoc192527
Monroe188877
Sunflower188754
Lincoln183664
Warren171757
Tate163049
Pike159958
Union159025
Copiah158840
Yazoo149538
Scott149429
Coahoma146742
Itawamba144433
Simpson143153
Alcorn142724
Pearl River142067
Prentiss138426
Grenada135844
Adams134148
Leake131643
Holmes124261
George121523
Tippah120430
Covington116434
Winston115824
Wayne115522
Hancock113337
Marion109046
Attala106133
Tishomingo105542
Newton102829
Chickasaw102132
Tallahatchie94727
Clarke88153
Clay86226
Jasper80421
Walthall73728
Montgomery71925
Calhoun71213
Stone71014
Carroll70114
Lawrence69814
Noxubee68917
Smith68616
Yalobusha67626
Perry63925
Tunica59519
Greene58222
Claiborne57416
Jefferson Davis53817
Humphreys52318
Amite50714
Benton48217
Quitman4766
Webster41614
Kemper40615
Wilkinson38422
Jefferson33511
Franklin3155
Sharkey30617
Choctaw3057
Issaquena1094
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Alabama Coronavirus Cases

Cases: 232506

Reported Deaths: 3457
CountyCasesDeaths
Jefferson30318491
Mobile19260356
Tuscaloosa12446148
Madison12204146
Montgomery12000232
Shelby971276
Baldwin819984
Lee750464
Morgan610447
Calhoun5964113
Etowah585764
Marshall579453
Houston503338
DeKalb460835
Cullman409636
Limestone400844
St. Clair396055
Elmore391061
Lauderdale378353
Walker348096
Talladega334042
Colbert294341
Jackson290524
Blount275436
Autauga261739
Franklin243633
Coffee230315
Dale225454
Dallas219631
Russell21753
Chilton216137
Covington212333
Escambia194031
Tallapoosa168590
Chambers167548
Clarke154919
Pike154714
Marion133935
Winston122523
Lawrence121436
Geneva11678
Marengo116424
Barbour116010
Pickens114118
Bibb113617
Butler113341
Randolph99521
Cherokee98524
Hale91531
Washington89818
Clay88823
Henry8386
Fayette83116
Lowndes78529
Monroe76811
Cleburne74214
Crenshaw70030
Macon69420
Bullock68919
Conecuh66814
Perry6686
Wilcox62318
Lamar6227
Sumter55322
Choctaw41713
Greene39917
Coosa3064
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