Can Home Depot Deliver Record Sales and Raise Guidance and Margins Again?

Home Improvement Retailer Home Depot reports second quarter earnings before market open Tuesday. $HD is expected to continue to grow revenue and earnings with its position to take advantage of the upsurge in construction and renovation. The elevated backlogs should insulate the company from the broader slowdown in the do-it-yourself market given its preference among professional contractors. The second quarter is historically HD’s strongest

$HD sales rose to the highest ever for the first quarter of the year. The company is still seeing healthy demand, even in the face of rising prices and a shaky housing market and raised guidance accordingly.

Earnings Preview

Expectations for HD second quarter of 2022:

  • Adjusted earnings per share (EPS) are forecast at $4.93, up 14.8% sequentially and 8.8% higher year over year.
  • For the full 2023 fiscal year ending in January, EPS is forecast at $16.48, up 6.1%, on sales of $156.22 billion, up about 3.4% year over year.
  • Expected to report second-quarter revenue of $43.33 billion, up 20.6% sequentially and by 5.4% year over year.

The numbers

  • Home Depot stock trades at 18.9 times expected 2023 EPS, 17.9 times estimated 2024 earnings of $17.34 and 16.8 times estimated 2025 earnings of $18.55 per share.
  • HD’s 52-week range is $264.51 to $420.61, and the low was posted Thursday.
  • Home Depot annual dividend of $7.60 (yield of 2.44%).
  • Total shareholders return for the past year is negative 4.8%.

What to watch for:

  • Commentary on elevated backlogs, effect of broader slowdown in the do-it-yourself market,
  • Home Depot’s same-store sales are expected to show more growth compared to last quarter
  • The balance of inflation increasing ticket sizes, enough to offset declining transaction volumes.

Lowe’s Earnings

Note competitor Lowe’s (LOW), reports before the bell Wednesday and it is also seen expanding its top- and bottom-lines, but at a slower pace than Home Depot, as its customers curb home-improvement plans.


HD Q1 Earnings Recap

HD earnings per share were $4.09, up from $3.86 a year earlier. Analysts expected earnings of $3.69 a share. First-quarter sales climbed to $38.9 billion from $37.5 billion a year earlier, a 3.8% increase.

On a comparable-store basis, sales rose 2.2% worldwide and 1.7% at U.S. stores. soundly beating the Refinitiv forecast of 1.4%, comparable sales in the U.S. also topped Street forecasts.

Average tickets rose 11.4% $91.72 per trip), compared to a 12.4% growth rate in the final three months of last year.

Gross margins narrowed 30 basis points to 33.8% but fell largely in-line with Street forecasts.

“The solid performance in the quarter is even more impressive as we were comparing against last year’s historic growth and faced a slower start to spring this year,” said Ted Decker, chief executive officer.

Outlook

Home Depot raised 2022 guidance for sales growth to 3% and an operating margin of about 15.4%. It expects EPS growth to be in the “mid-single digits,” it said.

Source: Home Depot, AlphaStreet

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