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Why Home Depot Stock Dropped Today

By Joe Tenebruso – Aug 17, 2021 at 3:24PM

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Consumers are cutting back on their spending.

What happened

Shares of Home Depot (HD -1.17%) fell on Tuesday, following the release of the home improvement retailer's second-quarter results. As of 3:10 p.m. EDT, Home Depot's stock price was down more than 4%. 

So what

Home Depot's sales rose 8.1% year over year to $41.1 billion. The gains were fueled by a 4.5% increase in comparable sales, including a 3.4% rise in the U.S.

The company's net earnings, in turn, jumped 11% to $4.8 billion. Its earnings per share, which were boosted by stock buybacks, increased 12.7% to $4.53.

A person is installing hardwood flooring.

The home improvement trend is moderating. Image source: Getty Images.

Investors, however, appeared to focus on weakening sales trends. Fewer people shopped at Home Depot's stores during the quarter than they did a year ago. And while higher average sales per transaction more than offset this decline in traffic, much of Home Depot's gains in average ticket were due to higher commodity prices. 

Now what

The slowdown in consumer spending is an industrywide trend. U.S. retail sales declined by 1.1% in July, as people scaled back their purchases of a wide range of goods. 

Consumer sentiment has fallen sharply in recent weeks as the rapid spread of the delta coronavirus variant has sparked concerns about the sustainability of the economic recovery. Fewer people receiving enhanced unemployment benefits or stimulus payments also likely contributed to the decline in retail sales.

Together, these factors could continue to weigh on Home Depot's and other retailers' financial results in the coming quarters.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Home Depot. The Motley Fool has a disclosure policy.

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