Home Depot Inc., the biggest U.S. home-improvement chain, suggested on Tuesday that the pace of U.S. home sales was slowing, and said impending trade tariffs could raise prices for its products.
The warning from the country’s top seller of power tools, flooring and lawn mowers overshadowed stronger-than-expected third-quarter results and a higher annual sales forecast.
The company’s shares fell nearly 4 per cent on Tuesday morning, but recovered most of their losses to trade marginally down later in the session.
After years of steady recovery from the U.S. housing market meltdown in 2008, there are signs that housing demand is slowing as mortgage rates climb higher, hurting purchasing power. Many large homebuilders including D.R. Horton and Lennar have already warned of slowing home sales, as the companies also face supply constraints.
“[The housing market] has recovered a lot, but not all the way,” Home Depot chief financial officer Carol Tomé said in an interview. “The steepness of the recovery is going to slow as we reach full recovery,” she said.
On a conference call with analysts, Ms. Tomé said home starts and home price increases were “moderating,” but other drivers of home-improvement spending supported Home Depot’s higher sales and earnings outlook for fiscal year 2018.
The Atlanta-based retailer now expects sales to rise 7.2 per cent in the year ending January, compared with an earlier forecast of 7-per-cent growth. It raised its earnings forecast to US$9.75 a share from US$9.42 previously.
Sales at U.S. Home Depot stores open for more than a year surged 5.4 per cent during the third quarter ended Oct. 28, above analysts’ expectations of a 4.38 per cent increase, according to IBES data from Refinitiv.
“The solid top-line proves a laser-focus on home sales doesn’t paint the entire picture of home improvement demand,” Jefferies analyst Randal Konik said in a note.
Costs from tariffs on Chinese imports – expected to rise to 25 per cent from next year – will also lead to pricing pressures, the company said.
The company said potential higher tariffs could impact 3.5 per cent of the goods it sources from outside the United States, up from 1 per cent currently.
Home Depot’s third-quarter net earnings rose 32.4 per cent to US$2.87 billion, or US$2.51 per share. That beat analysts’ average estimate of US$2.26 per share.
Net sales overall climbed 5.1 per cent to US$26.30 billion and also exceeded analysts’ forecasts.