Home Depot and Lowe's topped third-quarter expectations Tuesday and Wednesday morning, respectively. HD stock edged up slightly following Home Depot earnings while LOW stock rose Wednesday after its results.
The home improvement retailers provide insight into the demand and price inflation status of the home building and remodeling markets.
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.
Blame soaring mortgage rates for tumbling home sales and cooling prices. But home builders and housing-related retailers have rebounded in the past few weeks as Treasury yields have come off highs as inflation starts to ease. That raises the hope that housing demand will start to improve, though not necessarily right away.
Housing woes also raise concerns about demand for remodeling and contractor suppliers, 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 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 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
Expectations: More slowing was expected in the retailer's Tuesday report. Home Depot Q3 earnings were expected to grow 5% to $4.12 per share on 3% revenue growth to $37.95 billion.
Results: Home Depot's earnings rose 8.2% to $4.24 per share while revenue increased 5.6% to $38.87 billion.
Home Depot earnings have now grown for 10 consecutive quarters. Adjusted year-over-year profit growth slowed again after falling to to 11% in Q2, now a fourth straight quarter of below-20% gains. Revenue rose for a sixth straight quarter of single digit, or low double-digit, gains.
Same-store sales rose 4.3% for the third quarter after growing 5.8% in Q2. Home Depot is still stuck with bloated inventories, which rose more than 24% year-over-year in Q3. But that is down from 35% in the second quarter.
Home Depot reaffirmed its 2022 outlook following its the results. For the fiscal year, Home Depot still expects mid-single-digit EPS growth with total sales and comps increasing about 3% and a 15.4% operating margin. Wall Street has forecast Home Depot earnings rising 3.6% and revenue growing 1.8%.
HD Stock
Home Depot stock gained 1% Wednesday after rising about 1.7% by the closing bell Tuesday after its earnings report. Shares slid 2.6% on Monday prior to its earnings report. HD stock is down down nearly 26% year to date.
Home Depot did retake its 200-day moving average last week. HD stock arguably has a bottoming base with a 333.08 buy point. It's possible shares could be starting to work on a handle.
Lowe's
Lowe's earnings growth decelerated in 2022 and the company reported flat or lower revenues for the first two quarters of the year. But it managed to kick its skid with the latest results.
Lowe's Earnings
Expectations: Lowe's earnings were seen jumping 13% to $3.09 per share, which would mark its best gain in a year. Revenue was expected to rise about 1% to $23.12 billion.
Results: The company's adjusted earnings leapt 20% to $3.27 per share. And revenue grew 2.2% to $23.5 billion, marking its first positive revenue quarter since January.
Lowe's U.S. same store sales grew 3%, driven by a 19% increase in its professional segment and improved do-it-yourself sales trends. The Mooresville, N.C.-based home improvement retailer also spent $170 million on permanent wage increases and $200 million in bonuses for front-line hourly associates. And spent $4 billion on share buybacks while paying out $666 million in dividends during the quarter.
Inventories rose 19% year-over-year to $19.8 billion. Only slightly higher than its Q2 inventory levels of $19.33 billion.
Lowe's readjusted its full year outlook with its third quarter results. The company raised its adjusted earnings forecast to range from $13.65 to $13.80 per share, up from Q2 predictions of $13.10 to $13.60. However, total sales are seen between $97 billion and $98 billion, slightly narrower than its previous outlook of $97 billion to $99 billion in revenue. Analysts view EPS of $13.39 with revenue of $98.106 billion.
LOW Stock
Lowe's stock rose 3% on Wednesday following results after advancing 2% during trading Tuesday. Shares slid about 2% Monday and 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.
Like HD stock, Lowe's recently retook its 200-day line and has a bottoming base. The buy point is 221.29.
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