Dow Jones retailer Home Depot beat estimates for Q2 earnings and revenue early Tuesday. Home Depot stock rose despite the company lowered its EPS and comparable sales outlook for the year.
Home Depot reported earnings declined for the sixth quarter in a row, to $4.67 per share adjusted, beating FactSet expectations of $4.53 per share. Revenue rose to $43.17 billion, compared to analyst views of $42.57 billion. Sales fell the five previous quarters leading up to Tuesday's report.
Home Depot's same-store sales shrunk for the seventh consecutive quarter with a 3.3% decrease, worse than FactSet predictions of a 2.2% decline. The last time the Dow retailer recorded a same-store sales increase was Q3 2022.
"The underlying long-term fundamentals supporting home improvement demand are strong," CEO Ted Decker said in the release. Decker noted that higher interest rates and greater macro-economic uncertainty pressured consumer demand, which resulted in weaker spend across home improvement projects.
In the Q1 report, Decker said that Home Depot continued to grow market share, even amid ongoing softness in larger discretionary products.
Home Depot updated its full-year guidance with the results. The Dow retailer now expects 2024 sales to increase between 2.5% to 3.5%, up from its prior guidance of 1% growth. However, the company sees adjusted earnings per share falling 1% to 3%, from its previous outlook of a 1% decline.
Home Depot now forecasts same-store sales decline 3% to 4% for the year. It guided a 1% decline in comparable sales for Q1. Home Depot said a 3% decline in comparable sales implies a demand environment consistent with the first half of 2024. A 4% decline would imply incremental pressure on consumer demand. But the retailer says the trajectory is not currently toward the low end of the range.
Weather Impacts, Water Heating Up
"Home Depot kicked off retail earnings with organic sales results that fell short of Wall Street analyst expectations for the second consecutive quarter," M Science analyst John Tomlinson wrote after the report. The company's expectation for a rebound in sales trends from Q1, partly due to a late spring start, never materialized in Q2, he said. M Science believes home improvement demand continues to be negatively impacted from high interest rates and housing prices, which caused home turnover to weaken further during the quarter.
Last week, Bank of America noted that weather trends throughout the quarter, including a rainy May and hot June, could limit seasonal recovery expectations for Q2, The Fly reported. Still, Home Depot is well-positioned in a "choppy" macro environment, the firm wrote.
Truist at the beginning of August lowered its comparable sales estimate for Home Depot based on card data for the quarter, The Fly reported. Truist expects home improvement activity to eventually reaccelerate. But the timing is uncertain due to a modest rise in existing home inventory levels, which could potentially put pressure on housing prices. The firm lowered its price target on Home Depot stock to $396 from $406 but maintained a buy rating on the shares.
Meanwhile, JPMorgan in an Aug. 5 note wrote it expects that the "boiling of the frog consumer backdrop" will persist as the labor market weakens and consumer balance sheets deteriorate, particularly for low-income consumers. The firm predicts that the "water heating up" will drive increased promotions among retailers, including Home Depot. JPMorgan lifted its price target on Home Depot stock to 400 from 377 and kept an overweight rating on the shares.
Home Depot Stock
Home Depot stock climbed 1.2% Tuesday, rebounding above its 50-day moving average. Shares slumped 2.5% premarket.
HD stock eased 0.8% Monday, sliding back to its 200-day line after attempting to bounce off that moving average last week.
Shares of Home Depot stock climbed 1% so far this year, and are up about 8% from a late-May low.
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