Shares of Home Depot (NYSE: HD) fell more than 5% on Tuesday morning after the home improvement retailer reported third-quarter sales that fell short of expectations and cut its growth forecast for the second time this year. The company's push to grow online sales isn't paying off as quickly as management had hoped.
On Tuesday before markets opened, Home Depot reported third-quarter earnings of $2.53 per share, in line with estimates, on revenue of $27.2 billion, nearly $300 million short of expectations. Diluted earnings per share increased 0.8% year over year, while net earnings of $2.8 billion were down slightly from $2.9 billion in the third quarter of 2018.
CEO Craig Menear said the business is growing, but that sales came in below expectations "driven by the timing of certain benefits associated with our One Home Depot strategic investments." One Home Depot refers to the company's plan to integrate online and physical sales.
"We are largely on track with these investments and have seen positive results, but some of the benefits anticipated for fiscal 2019 will take longer to realize than our initial assumptions," Menear said. As a result, the company lowered its guidance for full-year fiscal 2019 sales to 1.8% growth, from 2.3% previously, and comparable-store sales growth to 3.5%, from 4% previously.
Menear remains upbeat despite the cut, saying, "we are encouraged by the momentum in our business as we invest to extend our competitive advantages." Home Depot has earned a reputation as a category leader among consumer discretionary companies, and the company said it still sees strong demand from contractors and consumers.
If management is correct and the cuts are more of a timing issue than a sign of weakening fundamentals, the post-earnings drop can be viewed as a buying opportunity for long-term investors.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Home Depot and recommends the following options: long January 2021 $120 calls on Home Depot and short February 2020 $205 calls on Home Depot. The Motley Fool has a disclosure policy.
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