Home Depot (HD) and Lowe’s (LOW) report third quarter results on Tuesday and Wednesday, respectively, this week. The home improvement retailers provide insight into the demand and price inflation status of the home building and remodeling markets. Home Depot stock and LOW stock edged down on Monday prior to their earnings reports.
Home prices rose 13% year over year in August, according to the latest data from the CoreLogic S&P Case-Shiller Index. That’s down from the 15.6% increase in July, marking the fifth consecutive month of decelerating price appreciation. Meanwhile, existing home sales were down 30% as of August, as were new home sales, CoreLogic reported last week.
Mixed signals across the housing spectrum put the demand outlook for remodeling and contractor suppliers into question, MKM Partners analyst David Bellinger wrote in a research note last week. But Q3 comparable store sales are likely to have held firm. And JPMorgan (JPM) analyst Christopher Horvers believes housing names “should see a greater degree of lagged negative revisions” going into 2023.
Meanwhile retailers with pricing power, in needs-based categories and in control of their margins, are best positioned while macro fears are high, Citi (C) analyst Steven Zaccone wrote in an Oct. 31 research note. Fundamentals are “generally mixed-to-positive in the near term, but the rolling bear thesis is an overhang stating eventually trends will get worse.”
Home Depot earnings have grown for nine consecutive quarters after it reported better-than-expected Q2 results on August 16. Adjusted year-over-year profit growth slowed to 11% in Q2, a third straight quarter of below 20% gains. Revenue rose 7%, a fifth straight quarter of single digit, or low double-digit, gains.
Same-store sales rose 5.8%, above the 4.9% consensus. However, Home Depot is stuck with bloated inventories, which rose more than 35% year over year.
Home Depot Earnings
Expectations: More slowing is expected in the retailer’s Tuesday report. Home Depot Q3 earnings are expected to grow 5% to $4.12 per share on 3% revenue growth to $37.95 billion.
Home Depot reaffirmed its 2022 outlook following its second-quarter results. For the fiscal year, Home Depot still expects mid-single-digit EPS growth with total sales and comps increasing about 3%. Wall Street has forecast Home Depot earnings rising 3.6% and revenue growing 1.8%.
Home Depot stock edged down 2.6% on Monday prior to its earnings report. HD shares are down nearly 26% year to date.
Lowe’s earnings growth decelerated in 2022 and the company reported lower or flat revenues for the past two quarters. For its second quarter ending in June, Lowe’s topped earnings estimates but fell short on revenue. Its EPS rose 9.8% over the same quarter a year ago, to $4.67. Revenue was essentially flat, falling 0.34% to $27.476 billion, down from $27.57 billion.
Inventories increased by nearly $2 billion to $19.33 billion for the quarter, up from $17.322 billion a year ago. Lowe’s reported overall store sales fell 0.3% for the period while comparable U.S. sales fell 0.2%.
Expectations: Lowe’s earnings are seen jumping 13% to $3.09 per share, which would mark its best gain in a year. A 1% Revenue gain, to $23.12 billion, would be Lowe’s first positive revenue quarter since January.
Lowe’s affirmed its full year outlook following the Q2 report. The company anticipates EPS in the upper range of $13.10-$13.60. And it looks for sales to range on the lower end between $97 billion-$99 billion. Analysts view EPS of $13.39 with revenue of $98.106 billion.
Lowe’s stock slid about 2% Monday ahead of its Wednesday earnings report, and shares are down roughly 21% so far this year. LOW stock’s relative strength reached a new high ahead of results, with the Relative Strength Rating hitting 69 on Monday. However, the stock remains deep in an 11-month correction.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
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