Earnings Preview: Home Depot’s Q3 report likely to reflect weak consumer demand

The US housing business has been principally resilient to headwinds like financial uncertainties up to now this 12 months. Nevertheless, housing exercise cooled in current months as excessive mortgage charges and inflation impacted client demand, which in flip affected the efficiency of corporations like The Residence Depot (NYSE: HD).

Whereas the house enchancment retailer’s enterprise advantages from secure buyer engagement with smaller initiatives, sure discretionary classes stay below strain attributable to cautious client spending. Nonetheless, Residence Depot’s inventory hit a brand new excessive a month in the past, reflecting constant investor confidence. The shares have gained about 15% since January this 12 months. Common dividend hikes and a comparatively excessive yield make HD a powerful long-term funding.

Q3 Report Due

When the corporate publishes third-quarter outcomes on November 12, at 6:00 am ET, Wall Road will probably be searching for a web earnings of $3.63, on a per share foundation. That compares to $3.81 per share the corporate earned within the third quarter of 2023. On common, analysts forecast revenues of $39.12 billion for the October quarter, which represents a 4% year-over-year improve.

Within the second quarter, Residence Depot’s gross sales edged up 1% yearly to $43.2 billion and beat Road View. Comparable gross sales fell 3.3%, marking the seventh drop in a row. Damage by the weak top-line efficiency, the July-quarter revenue decreased to $4.6 billion or $4.60 per share. The underside line beat estimates, because it did in every of the trailing 4 quarters. Common buyer ticket, a measure of the typical worth of particular person buyer transactions, declined 1% year-over-year in Q2, whereas complete buyer transactions dropped modestly to $451 million.

Highway Forward

With its in depth retailer footprint and customer-focused enterprise mannequin, Residence Depot appears well-positioned to sort out the current challenges. Whereas the current gross sales slowdown is anticipated to proceed by way of the rest of the 12 months, a turnaround can’t be distant, aided by bettering financial situations and declining rates of interest.

From Residence Depot’s Q2 2024 earnings convention name:

“Whatever the present strain within the atmosphere, our staff stays centered on serving our prospects and guaranteeing now we have the correct merchandise on the proper values, and we stay centered on long-term share progress within the extremely fragmented roughly $1 trillion house enchancment market. Bear in mind, we function in one of many largest asset lessons, which is estimated at roughly $45 trillion, representing the put in base of houses in the US. At this time, now we have roughly 17% market share, with super progress potential.”

Outlook

The Residence Depot management has downwardly revised its full-year steering — expects gross sales and comparable gross sales to say no 3-4% and earnings per share to drop September 11% year-over-year. Together with SRS Distribution, which was acquired earlier this 12 months as a part of the corporate’s efforts to revive the slowing Professional enterprise, FY24 income is anticipated to develop between 2.5% and three.5%. Capital expenditure is anticipated to be roughly 2% of gross sales on an annual foundation as the corporate maintains its technique of continued funding within the enterprise.

The inventory opened increased on Monday and was buying and selling near the $400 mark by noon. The long-term common value of HD, for 12 months, is $356.70.