Home Depot (HD -1.81%) investors had been bracing for some potential bad news in the home improvement giant's second-quarter report. While management in late May predicted a growth rebound following a sluggish start to the year, executives also pointed to a few challenges that could threaten the growth forecast they had laid out for 2019.

On Tuesday, the retailer confirmed that these issues have impacted demand and will likely hurt sales results for the rest of the year.

More on that updated growth forecast in moment. First, here's a look at how Home Depot's business fared in the second quarter.

 Metric

Q2 2019

Q2 2018

Change

Revenue

$30.8 billion

$30.5 billion

1%

Net income

$3.48 billion

$3.51 billion

(1%)

Earnings per share

$3.18

$3.06

4%

Data source: Home Depot financial filings.

What happened with Home Depot this quarter?

Sales growth rebounded after slowing for three consecutive quarters. However, the expansion pace remained well below management's forecast for the full fiscal year. Earnings weakened, too, as customer traffic and average spending metrics softened.

Man with a shopping cart picking up a piece of lumber from a shelf

Image source: Getty Images.

The key highlights of the quarter:

  • Comparable-store sales rose 3% to mark an acceleration over the prior quarter's 2.5% uptick. That result put growth at about 3% so far this year compared to over 5% in each of the last two years.
  • Gross profit margin contracted slightly, dipping to 33.8% of sales from 34% a year ago.
  • Customer traffic was flat and the growth in average order spending was also weaker than investors have seen in recent quarters.
  • Home Depot held the line on operating expenses, but the falling gross profit margin led to a decline in operating income that translated into modestly lower net income. Continued aggressive stock repurchase spending, meanwhile, allowed per-share earnings to rise by 4%. 

What management had to say

Executives said broader industry trends were positive over the last few months. "We are encouraged by the momentum we are seeing from our strategic investments," CEO Craig Menear said in a press release, "and believe that the current health of the U.S. consumer and a stable housing environment continue to support our business." Menear went on to say that the team was "pleased with our results as we delivered accelerating comp performance throughout the quarter."

However, executives noted that lumber prices have fallen significantly over the last few months, and the move is still pressuring sales results.

Newly announced tariffs are also creating a tougher shopping environment for consumers. "As a result," Menear explained, "today we are updating our sales guidance to account primarily for continued lumber price deflation, as well as potential impacts ... arising from recently announced tariffs."

Looking forward

Home Depot lowered its growth forecast and now sees comparable-store sales rising by about 4% rather than the 5% it had projected as recently as late May. The company left its earnings outlook unchanged at a 3% increase.

This marked the first time in several years that investors have seen the home improvement giant reduce its annual comp target. Yet the good news is that the slowdown is mostly due to short-term issues like lumber price volatility and temporary tariff spikes. So far, these challenges aren't threatening the health of the wider industry, which explains why Home Depot still expects to increase its sales and profits this year following a banner 2018.