Across a large swath of the United States, the spring of 2018 felt more like winter, part two. Occasional teases of warm weather repeatedly regressed to low temperatures, bizarrely timed snowstorms, and dismal skies. So it is perhaps understandable that the seasonal sales that Home Depot (NYSE:HD) usually racks up in April didn't quite materialize.
In this segment of the Motley Fool Money podcast, host Chris Hill and Fool analysts Jason Moser, Matt Argersinger, and Ron Gross dig into the home-improvement leader's fiscal first-quarter numbers and discuss some of the catalysts that could impact its longer-term growth.
A full transcript follows the video.
This video was recorded on May 18, 2018.
Chris Hill: Let's move on to Home Depot. First quarter report got hit by weather, and shares of Home Depot falling a bit this week. Jason, interesting to note, though, they had a bad April. It was just flat-out bad. And they didn't lower guidance one bit.
Jason Moser: No. I think the narrative that this was somehow a weak quarter for Home Depot is laughable. Maybe that's how opportunities arise. I think longer-term focused investors probably look at it that way. I mean, when you look at the numbers that Home Depot continues to lob up there, given the size of the company, they continue to grow comps 4-5%, growing the U.S. comps, growing that top line, all in all a very well-run business. The nice thing about Home Depot is, it does make up for those weather-related occasions. It serves its purpose in good weather and in bad weather. So, then, it becomes really a timing issue, maybe, based on the expectations that Wall Street sets up.
You want to look at something that's going to be a nice, long-term catalyst for a business like this, go back to 1995. 17% of homes in 1995 were less than ten years old. 33% of homes were greater than 40 years old. Now, fast forward to 2016. Only 8% of the homes in the U.S. were less than ten years old, and 51% of the homes were more than 40 years old. And that trend is going to continue. Just, connecting the dots here, in plain English, that means our houses are getting older, a lot older, and we're not really backfilling that with a lot of new homes. That just means that Home Depot -- and Lowe's, too -- should see a lot of business coming in in the next few years, five years, even. I just think there's a great catalyst for a business that has remained somewhat Amazon-proof to this point.
Matt Argersinger: I like that data point that Jason has about the age of houses in general.
Moser: Thank you! [laughs]
Argersinger: What I do worry about, though, is that the house flipping-trend is another trend that's taken off. We've seen fits and starts of it, certainly in the last housing boom, but I feel like it's come back in a big way, to the point where there's a lot of hedge funds now that have gotten really big into house-flipping.
Hill: Oh, I'm sure that'll work out great!
Ron Gross: Redfin's doing it!
Argersinger: And Zillow, correct, yeah. That, to me, right there, that's phenomenal business for Home Depot, because you're going in, you're wrecking these houses, and rebuilding them up from the inside. Is that sustainable, especially with, eventually, mortgage rates rising? We'll see.
Hill: How much of the house flipping do we need to blame on the House Hunters-type shows?
Argersinger: A good chunk.
Gross: Are those still popular?
Argersinger: I mean, I like those shows. They're entertaining.
Moser: They do such a good job of making it seem like schmoes like us can actually do it, you know? Like, "I can do that!"
Gross: I'm getting nervous, because I'm seeing more and more of these mortgage commercials that are going out of their way to be creative to get you a mortgage. That's what got us into trouble last time. We'd better be careful.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon. Jason Moser has no position in any of the stocks mentioned. Matthew Argersinger owns shares of Amazon and Zillow Group (A shares). Ron Gross owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool has the following options: short September 2018 $180 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.