Home Depot Inc. (NYSE:HD) has lowered its fiscal year sales and warned that they will be impacted on by the falling lumber prices and the ongoing tariff wars between the US and China.
Home Depot cuts its FY2019 sales forecast
On Tuesday the home improvement chain said that it expects 2019 sales growth to increase by around 2.3% down from the previous forecast of 3.3%. The retailer has indicated that same-store sales which are a crucial metric for the company will grow by 4% down from 5% that was forecast in May. The company has said that earning per share for fiscal 2019 will not miss estimates.
In the second quarter, the retailer’s net sales increased by 1.2% to around $30.84 billion but marginally missed consensus estimate of $30.98 billion. Net income in the quarter dropped slightly to around $3.48 billion or $3.17 per share.
Lumber prices deflation and Trade tariffs hurting business
The CEO and Chairman of Home Depot Craig Menear said that they expect the business to continue doing well because of the stable housing market. The company is suffering from declining lumber prices that have forced it to lower the cost of fences, decks, and flooring. Lumber prices have significantly declined by about 16% since February as labor and land shortages have constrained the ability to build new houses thus leading to a supply glut for key building material.
The company has also voiced concerns regarding the impact of Trump’s tariffs on China on its business days after Deere & Co raised similar fears. The company has warned that the proposed 10% tariffs that will be starting on September 1 and December 15 along with the current 25% tariffs could potentially increase the cost of sales by $2 billion which is about 2% of the country’s annual sales.
Carol Tome the CFO of Home Depot indicated that the company plans to negotiate the tariff cost with suppliers which they don’t expect to be that much. Wall Street analysts expect the impact of 10% tariffs on earnings to come from a hit from consumer demand instead of growing expenses.