Home Depot Reaffirms Guidance with Higher Prices Offsetting Lower Transaction Volume

Home Improvement Retailer Home Depot reported better than expected third quarter earnings before the market open Tuesday. Same-store sales rose 4.3%, ahead of estimates for 3.1%. U.S. same-store sales rose 4.5%. Home Depot said customer transactions in the third quarter fell 4.3%. Average ticket rose 8.8% to $89.67. The elevated backlogs insulated the company from the broader slowdown in the do-it-yourself market given its preference among professional contractors. Inflation is evident with cost of sales in the third quarter rising 5.7% to $25.65 billion. HD stock fell 2.2% ahead of Tuesday’s opening bell, down 26% this year as of Monday’s close.

Home Depot Q2 22 Earnings:

The company is still seeing healthy demand, even in the face of rising prices and a shaky housing market and reiterated guidance accordingly. Home Depot for the three months ending in October, the company’s fiscal second quarter, earnings were $4.24 per share, up 25.6% from the same period last year and firmly ahead of the Street consensus forecast of $4.13 per share. Group revenues, Home Depot said, rose 5.6% to $38.87 billion, just ahead of analysts’ estimates of a $37.95 billion.

Highlights

  • Adj EPS $4.24 (est $4.13)
  • Revenue $38.87B (est $37.95B)
  • Same Store Sales 4.3% (est 3.02%)
  • Comparable sales in the U.S. up 4.5
  • Cost of sales rose 5.7% to $25.65 billion.
  • Average tickets rose 8.8% per trip, compared to a 9.1% growth rate in the second quarter, to $89.67
  • Customer transactions in the third quarter fell 4.3%.
  • Home Depot Reaffirms Fiscal 2022 Guidance

“We delivered another solid performance in the third quarter, driven by strength in project-related categories across the business,” said Ted Decker, chairman, president and CEO, in a press release.

HD Stock Market Reaction (Updated)

  • $301.50 ▲+5.42 (-1.77%) Pre-Market
  • $312.46 ▲ +5.54 (+1.80%) Lunch
  • $312.46 ▼ -58.62 (-15.8%) past year
  • $312.46 ▲ +144.51 (+86.15%) past 5 years

“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.


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.


Outlook

Home Depot for the 2022 fiscal year, which ends next January, Home Depot reiterated that it sees ‘mid-single digit’ earnings growth, up from its prior forecast of ‘low single digit’ gains, and comparable sales growth of around 3% and operating margins of around 15.4%

Source: Home Depot, AlphaStreet

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