Home Depot (HD) stock is struggling for direction Tuesday after the home improvement retailer reported higher-than-expected results for its second quarter but warned of weaker consumer demand.
In the three months ended July 28, Home Depot's revenue increased 0.6% year-over-year to $43.2 billion, helped by its recent acquisition of SRS Distribution, which contributed $1.3 billion of revenue in the quarter. Its earnings per share (EPS) decreased by a penny from the year-ago period to $4.67.
Comparable sales for the quarter were down 3.3%, including a 3.6% drop in the United States.
"The underlying long-term fundamentals supporting home improvement demand are strong," said Home Depot CEO Ted Decker in a statement. "During the quarter, higher interest rates and greater macro-economic uncertainty pressured consumer demand more broadly, resulting in weaker spend across home improvement projects. However, the team continued to navigate this unique environment while executing at a high level."
Home Depot's headline results beat analysts' expectations. Wall Street was anticipating revenue of $43.1 billion and earnings of $4.49 per share, according to CNBC. However, the comparable sales result was far worse than the 2.1% decline analysts had forecasted.
As a result of its performance in the first half and its recently completed acquisition of SRS Distribution, Home Depot updated its full-year outlook, which includes a 53rd week. The company now anticipates revenue growth in the range of 2.5% to 3.5% and earnings per share to increase between 1% to 3%. This compares with its previous forecast for revenue and EPS growth of approximately 1% apiece.
Home Depot also revised its comparable sales outlook, now anticipating a decline of 3% to 4%. The company said a 3% decline "implies a consumer demand environment consistent with the first half of fiscal 2024" while a 4% decline "implies incremental pressure on consumer demand." The company had previously forecasted comparable sales to decline approximately 1%.
Is Home Depot stock a buy, sell or hold?
Home Depot has struggled on the price charts this year, up a slight 1% on a total return basis (price change plus dividends) vs the S&P 500's 13% return. Still, Wall Street is bullish on blue chip stock.
According to S&P Global Market Intelligence, the average analyst target price for HD stock is $383.08, representing implied upside of more than 10% to current levels. Meanwhile, the consensus recommendation is a Buy.
Financial services firm Jefferies is one of the more bullish outfits on the Dow Jones stock with a Buy rating and $426 price target.
"A noisy quarter given the six-week sales contribution from recently acquired SRS, but nonetheless, the underlying trend is clear: higher interest rates and greater macroeconomic uncertainty pressured weaker spend across home improvement projects during the quarter," Jefferies analyst Jonathan Matuszewski said in a note this morning.
Jefferies' $426 price target sits almost 23% above HD's current price.
