Home Depot’s Q2 Earnings Beat Analysts’ Forecasts
US-based home improvement retailer Home Depot published on Tuesday its financial report for the second quarter of the fiscal year 2019, beating analysts’ estimates. The performance has driven the stock price, which gained 4.40% at the close of Tuesday session on the New York Stock Exchange (NYSE).
Big-Ticket Items Boost Home Depot’s Revenue
The retailer said that it sold more big-ticket items (BTI) to high-spending construction firms and handymen. However, the company is worried about the impact of the trade tensions between the US and China.
The largest home improvement retailer in the world recorded revenue of $30.8 billion in the second quarter, up 1.2% year-on-year.
Net earnings in the second quarter were $3.5 billion, or $3.17 per diluted share, while analysts expected $3.08 per share. This is a flat dynamic for net earnings compared to the same period in the fiscal year 2018, though the $3.5 billion figure represented $3.05 per diluted share at the time.
Home Depot CEO and President Craig Menear commented on the results:
We were pleased with our results as we delivered accelerating comp performance throughout the quarter.
The CEO added:
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. That being said, lumber prices have declined significantly compared to last year, which impacts our sales growth.
The company’s share price was up 4.4% to $217.11 on Tuesday, as investors were bullish on the positive earnings.
Home Depot’s Outlook For 2019
Despite the results, Home Deposit warned that Donald Trump’s tariffs on imports from China could affect the company’s cost of sales. The US imposed 25% tariffs on $250 billion worth of goods imported from China. Besides, the Trump administration proposes another 10% tariff for an additional $300 billion worth of Chinese goods. Economists warned that the new tariffs could force US retailers to increase prices, eventually hurting demand.
In light of the new tariffs, Home Depot said it could increase its cost of sales by $2 billion or 2% of its annual revenue.
The company announced that it now predicts 2019 sales to increase by about 2.3%, down from a previous outlook of a 3.3% annual growth.
However, Home Depot is confident that it would overcome the risks posed by the Sino-US trade war. CFO Carol Tome told Reuters:
We will work with each of our suppliers in negotiating that tariff cost, and my suspicion is, at the end of the day, it won't be quite that much.
Economists agree that the impact from the upcoming tariffs on Home Depot’s earnings will come from a strike on demand rather than an increase in expenses.
Chuck Grom, analyst at Gordon Haskett, commented:
A tariff is a tax and not knowing how the consumer is going to react to that is probably prudent given the environment we're in right now.
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