Home Depot Beats Earnings Amid Housing Slump; Lowe’s On Deck

Home Depot (HD) topped expectations for the third quarter Tuesday morning, and Lowe’s (low) on deck starting Wednesday. HD stocks fell slightly and LOW stocks were little changed before the open Tuesday after Home Depot’s earnings.




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Home improvement retailers provide insight into the demand and inflation status of the home building and remodeling market.

house 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 a 15.6% increase in July, marking the fifth consecutive month of slowing price appreciation. Meanwhile, existing home sales fell 30% in August, as did new home sales, CoreLogic reported last week.

Blame rising mortgage rates for cooling home sales and prices. But home builders and retailers related to housing have rebounded in the past few weeks as Treasury yields have come off highs as inflation begins to ease. It raises hopes that housing demand will begin to increase, although not immediately.

Housing woes are also raising concerns about demand for remodeling and contractor contractors, 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 the real estate name “must see a large degree of negative revisions behind” going into 2023.

Meanwhile, retailers that have pricing power, in demand-based categories and control their margins, are best positioned amid high macro fears, Citi (C) analyst Steven Zaccone wrote in a research note on October 31. Fundamentals are “generally mixed-to-positive in the near term, but the rolling bear thesis is an overhang stating that eventually the trend will get worse.”

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.

Result: Home Depot’s earnings rose 8.2% to $4.24 per share while revenue increased 5.6% to $38.87 billion.

Home Depot’s earnings have now grown for 10 consecutive quarters. Adjusted year-over-year profit growth slowed again after falling to 11% in Q2, now the fourth straight quarter of below-20% gains. Revenue rose for the sixth straight quarter of single-digit, or low double-digit, gains.

Same-store sales rose 4.3% for the third quarter after increasing 5.8% in Q2. Home Depot is still stuck with bloated inventory, which rose more than 24% year-over-year in Q3. But that’s down from 35% in the second quarter.

Home Depot reaffirmed its 2022 outlook after the results. For the fiscal year, Home Depot still expects mid-single-digit EPS growth with total sales and comps up about 3% and an operating margin of 15.4%. Wall Street had forecast Home Depot’s earnings to rise 3.6% and revenue to increase 1.8%.

HD stock

Home Depot stock fell 1% premarket Wednesday after the announcement. The stock edged down 2.6% on Monday before its earnings report. HD stock is down nearly 26% year to date.

Home Depot retook the 200-day moving average last week. HD stock arguably has a bottoming base with 333.08 buy points. Maybe the stock can start working on the handle.

Lowe’s

Lowe’s earnings growth is slowing in 2022 and the company has reported lower or flat revenue for the past two quarters. For the second quarter that ended in June, Lowe’s topped earnings estimates but fell short of revenue. Its EPS rose 9.8% in the same quarter a year ago, to $4.67. Revenue was basically flat, down 0.34% to $27.476 billion, down from $27.57 billion.

Inventory increased nearly $2 billion to $19.33 billion for the quarter, up from $17.322 billion a year ago. Lowe’s store sales were reported to be down 0.3% for the period while comparable US sales were down 0.2%.

Lowe’s earnings

Expectations: Lowe’s earnings are seen jumping 13% to $3.09 per share, which will mark the best gain in a year. A 1% revenue gain, to $23.12 billion, would be Lowe’s first positive revenue quarter since January.

Lowe affirmed its full year outlook after the Q2 report. The company anticipates EPS in the upper range of $13.10-$13.60. And it’s looking for sales in the lower end between $97 billion-$99 billion. Analysts see EPS of $13.39 on revenue of $98.106 billion.

LOW stock

Lowe’s stock was little changed early Tuesday. The stock slid about 2% Monday ahead of Wednesday’s earnings report, and is down roughly 21% so far this year. LOW’s stock relative strength reach a new high ahead of the results, and Relative Strength Rating hit 69 on Monday. However, the stock remains deep in an 11-month correction.

Like HD stock, Lowe’s recently retook its 200-day line and has a new low. the buying point is 221.29.

You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison

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