Home Improvement Retailer Home Depot reported better than expected second quarter earnings before the market open Tuesday. The average amount spent per transaction at $HD rose 9.1% during the quarter, while the total number of transactions fell 3% as it grew revenue and earnings with its position to take advantage of the upsurge in construction and renovation. The elevated backlogs insulated 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, and sales rose to the highest ever for the second quarter of the year.
Earnings
The company is still seeing healthy demand, even in the face of rising prices and a shaky housing market and raised guidance accordingly. For the three months ended July 31, Home Depot earnings were $5.17 billion, or $5.05 a share, compared with $4.81 billion, or $4.53 a share, in the same quarter last year. The results were ahead of Wall Street analysts who had expected earnings of $4.95 a share.
Highlights
Home Depot Q2 22 Earnings:
- Revenue: $43.79B (exp $43.57B)
- EPS: $5.05 (exp $4.98)
- Reaction Premarket (HD 313.23, -1.38, -0.44%)
- Q2 Comp Sales +5.8%, Est. +4.56%
- Still Sees FY Comp Sales About +3%, Est. +3.03%
- Reaffirms Fiscal 2022 Guidance
Home Depot’s transaction volume has fallen in each of the past five quarters, unable to keep pace with a surge in home-improvement activity during the first year of the pandemic. However, the average transaction value has increased each quarter, often by more than 10% year over year as the company continues to raise prices across its stores to protect profit margins amid rising inflation.
“When you look at the wealth creation over the last two years, home price appreciation of almost 40%, our customer is just in a really good place right now,” Chief Financial Officer Richard McPhail said on the company’s earnings call.
Outlook
The company reaffirmed its guidance for revenue to rise 3% this year, saying it still expects weaker year-over-year sales growth in the second half of 2022. Per-share earnings are expected to rise at a mid-single-digit rate.
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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