2 Experts React To Home Depot's Earnings: Internal Issues At Play

Home Depot Inc (NYSE: HD) reported a revenue miss in its third quarter and weaker-than-expected same-store sales. Management also revised its full-year 2019 outlook.

Home Depot's same-store sales growth in the quarter came in at 3.5%, which was notably short of the approximate 5% estimate the Street expected. The company also revised its full year comp growth outlook from 4.0% to 3.5%.

Home Depot Leadership Voids

The typical consumer remains in "great shape," which implies Home Depot's woes are company specific, Strategic Resource Group managing director Burt Flickinger said on Fox Business.

Home Depot's management team isn't as strong as it has been in the past, Flickinger said. The company lost a lot of its best talent, especially Marvin Ellison who is now the CEO of rival Lowe's Companies, Inc. (NYSE: LOW) and built himself a "dream team" of executives to better compete in the space.

Flickinger said Lowe's is also better targeting the women demographic group and Home Depot's losses are Lowe's gains. This trend could continue and Lowe's has the better momentum among the two rivals.

'Something Happened'

Oppenheimer analyst Brian Nagel said on CNBC the key question investors are likely asking is why the company fell short of expectations. Based on the commentary management offered, there's reason to believe the underperformance is an "internal issue."

Nagel said prior lumber pricing headwinds have now abated while the backdrop for the home improvement sector remains favorable. Other factors impacting the sector remain encouraging, including a strong housing market and weather.

"There is rarely if any type of internal issue and what we are seeing this morning is something that happened in the third quarter," Nagel said. "And that is going to shock people."

Home Depot's management should be honest with investors and discuss what mistakes were made and how it can be fixed, Nagel said.

Home Depot's stock traded lower by 5% to $226.69 per share at time of publication.

Related Links:

Credit Suisse Now Favors Lowe's Stock Over Home Depot

Home Depot Core Strength Goes On Despite Cheaper Lumber, Bad Weather And China

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