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Why Home Depot Stock Collapsed Wednesday

By Jeremy Bowman - Updated Mar 19, 2020 at 7:49AM

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Shares of the home-improvement retailer fell as it said it would cut hours at its stores.

What happened

Shares of Home Depot (HD 2.75%) were falling sharply today as stocks plunged over concerns about the coronavirus outbreak, and the company announced that it would temporarily cut store hours due to the COVID-19 situation. Home Depot said stores would remain open as it's an essential retailer, but they would close at 6 p.m. EDT. 

The stock was down at 12.9% as of 2:57 p.m. EDT, while the S&P 500 had fallen 7.4% at that time.

An employee working in the aisle of a Home Depot store

Image source: Home Depot.

So what

The announcement said that some of Home Depot's products were in high demand. While that may be true, it also seems likely that overall customer traffic will dwindle as Americans under lockdown-style conditions forego home-improvement projects and focus on buying necessities such as food, medicine, and cleaning products, as many are already doing. 

Rival Lowe's also fell on a downgrade over uncertainty around the coronavirus outbreak and that company's shift to a new e-commerce platform at a time when online demand is likely growing.

Investors may also be a realizing that we're likely headed for a recession, and spending on home improvement and housing is highly correlated with the overall health of the economy. Though the company may be performing better than most discretionary retailers due to emergency spending on certain products, the stock could struggle from the economic fallout from the pandemic.

Now what

Spring is normally Home Depot's busiest time of year as it hires thousands of temporary staff to ramp for up the peak home-improvement season. However, with the coronavirus crisis likely to persist at least through the spring, Home Depot is likely to miss out on its top selling season. By this time of the year in 2018 and 2019, Home Depot had already announced plans to hire 80,000 seasonal employees. This year, it's made no such announcement, and one seems highly unlikely given the shortened hours and the crisis.

Home Depot is the leader in its industry and can endure this crisis. The stock will eventually bounce back, but investors should expect the next few quarters, at least, to be challenging.

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Stocks Mentioned

The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
HD
$283.00 (2.75%) $7.58
Lowe's Companies, Inc. Stock Quote
Lowe's Companies, Inc.
LOW
$182.84 (3.69%) $6.51

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