August 20, 2019 / 12:23 PM / in 2 months

Home Depot beats quarterly profit estimates, warns of tariff impact

(Reuters) - Home Depot Inc beat quarterly profit estimates on Tuesday as it sold more big-ticket items to high-spending builders and handymen, while flagging the potential impact U.S. President Donald Trump’s ongoing trade tussle with China on consumers.

A Home Depot delivery truck drives on Wall St. in New York City, U.S., August 16, 2017. REUTERS/Brendan McDermid/Files

The home improvement chain, which has distanced itself from co-founder Bernie Marcus’ support for Trump’s re-election campaign, blamed the impact of the trade dispute as well as a continued slump in lumber prices for a cut in its full-year sales forecast.

The United States’ proposed tariffs on an additional $300 billion worth of goods, which would effectively tax almost everything imported from China, have sent jitters through Wall Street as companies warn that prices for U.S. shoppers would likely rise, potentially slowing economic growth.

“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,” Gordon Haskett analyst Chuck Grom said.

“It’s more of the impact on Home Depot’s consumer spending than expenses.”

Home Depot said it now expects 2019 sales to rise about 2.3%, down from a prior forecast of a 3.3% increase.

However, the company’s shares rose 2% as it recorded a bigger-than-expected profit in the second quarter, selling more products to professional customers like electricians, plumbers and builders who typically make larger, more frequent purchases.

The home improvement chain, which is looking to broaden its business beyond its core “do-it-yourself” customers, said its average bill amount rose 1.7% to $67.3 in the reported quarter.

Lumber prices, however, continue to weigh on the company’s sales as roughly 8% of its revenue comes from sales of the commodity.

Lumber futures have fallen about 16% since their 2019 highs in early February as land and labor shortages have constrained builders’ ability to construct new houses, creating a supply glut for the key building material.

That prompted Home Depot to cut its full-year same-store sales growth forecast as well to 4% from 5%.

Home Depot’s net sales rose 1.2% to $30.84 billion in the second quarter ended Aug. 4, marginally missing analysts’ average estimate of $30.98 billion, according to IBES data from Refinitiv.

It posted a profit of $3.17 per share, beating analysts’ estimates of $3.08 per share.

Reporting by Uday Sampath in Bengaluru; Editing by Shinjini Ganguli and Saumyadeb Chakrabarty

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