Assessing Home Depot’s Earnings Performance

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By Ronald Tech

Amidst the flurry of earnings reports from S&P 500 companies, retail giant Home Depot HD recently unveiled its quarterly results, sparking a wave of bullish sentiment among investors. As the spotlight now shifts to industry peer Lowe’s LOW, scheduled to disclose its quarterly figures on August 20th, market participants are eager to gauge what lies ahead.

Home Depot’s Optimistic Stance

HD managed to surpass expectations by 2.9% compared to the Zacks Consensus EPS estimate and reported a sales growth of 1.4% beyond the consensus figures. Despite a slight dip in earnings from the previous year, sales still exhibited a modest 0.6% uptick.

Although home improvement demand witnessed a surge during the pandemic, with consumers rushing to spruce up their living spaces, the trend has now markedly slowed down. Consumers who once feverishly embarked on projects like porch renovations and fence upgrades have now significantly reduced their engagement in such activities.

CEO Ted Decker acknowledged this downward trend but remained steadfast in his affirmation of the enduring strength in home improvement demand, stating, “The underlying long-term fundamentals supporting home improvement demand are strong.”

Decker further explained, “During the quarter, higher interest rates and greater macro-economic uncertainty pressured consumer demand more broadly, resulting in weaker spend across home improvement projects.”

While margin pressures did temporarily strain profitability, recent periods have witnessed a gradual reversal in this trend, as illustrated in the trailing twelve-month chart below.

Lowe’s Facing Cooling Growth Prospects

Anticipations for Lowe’s LOW depict a slight downward shift in earnings forecasts over recent months, a trend that remained steady following the disclosure of HD’s quarterly performance. An anticipated growth slowdown awaits LOW, with a projected 13% dip in earnings accompanied by a 4% decline in sales.

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Similar to HD, Lowe’s also faces a deceleration in demand, as evidenced by a 4% year-over-year drop in comparable store sales during its latest reporting period, driven by a decline in big-ticket discretionary purchases. Given the overarching trend observed in Home Depot’s results, it is plausible to expect Lowe’s to continue grappling with reduced spending on significant ticket items.

Additionally, it is crucial to note that LOW currently holds a Zacks Rank #4 (Sell), with earnings estimates undergoing a downward adjustment across the board in recent times. Investors are advised to exercise caution and adopt a wait-and-see approach until positive revisions in earnings estimates materialize, likely stemming from favorable guidance and better-than-expected quarterly outcomes.

Summing It All Up

Following Home Depot HD’s recent earnings announcement, the company witnessed a relatively positive market response post-release. While no alarming red flags emerged from the disclosure, the persistent slowdown in major discretionary spending segments continues to pose a challenge for the retail giant.

As Lowe’s LOW gears up to present its financials on August 20th, an echo of the subdued trend in large-ticket expenditures is anticipated, with forecasts hinting at a downturn in both earnings and revenues compared to the previous year.