Home Depot cuts outlook citing tariffs, sliding lumber prices

Falling U.S. mortgage rates help profit beat expectations

Home Depot cut its sales expectations for the year as lumber prices slid and the company braces for the potential impact of tariffs on its customers.

The Trump administration delayed most of the tariffs it planned to impose on Chinese goods last week and dropped others altogether, responding to pressure from businesses and growing fears that a trade war is threatening the U.S. economy.

Lumber prices are falling because of weakness on the home construction. The Commerce Department said Friday that the pace of U.S. home construction fell a sharp 4 per cent in July. So far this year, housing starts have declined 3.1 per cent.

Still, the company handily beat second quarter profit expectations with Americans capitalizing on falling mortgage rates. The average rate on the benchmark 30-year loan is hovering at 3.6 per cent, its lowest level since late 2016. A year ago the rate was 4.53 per cent.

More Americans signed contracts to purchase homes in June, marking the second straight month of growth.

“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,” CEO Craig Menear said in a prepared statement.

“That being said, lumber prices have declined significantly compared to last year, which impacts our sales growth. As a result, today we are updating our sales guidance to account primarily for continued lumber price deflation, as well as potential impacts to the U.S. consumer arising from recently announced tariffs.” The Home Depot Inc. now anticipates 2019 sales to increase about 2.3 per cent, down from its prior expectations of a 3.3 per cent rise.

The chain still expects annual per-share earnings to climb approximately 3.1 per cent from last year, to $10.03. (U.S.)

For the three months ended Aug. 4, Home Depot earned $3.48 billion, or $3.17 per share. That’s a dime better than Wall Street had expected and better than last year’s $3.51 billion, or $3.05 per share.

Revenue for the home improvement chain rose to $30.84 billion, from $30.46 billion. Wall Street was calling for $31 billion.

Comparable store sales, a key gauge of a retailer’s health, increased 3 per cent.

In the U.S., those sales were up 3.1 per cent.

Shares rose slightly before the market opened Tuesday.

U.S. home construction fell 4 per cent in July; and so far this year housing starts have declined 3 per cent