Home improvement retailers provide information on the demand and price inflation status of the construction and home renovation markets.
Home prices rose 13% year-over-year in August, according to the latest data from the CoreLogic S&P Case-Shiller Index. It is down from the 15.6% increase in July, marking the fifth consecutive month of decelerating price appreciation. Meanwhile, existing home sales fell 30% in August, as did new home sales, CoreLogic reported last week.
Blame rising mortgage rates for slumping home sales and cooling prices. But home builders and housing retailers have rebounded in recent weeks as Treasury yields have peaked as inflation begins to ease. This raises the hope that housing demand will start to improve, though not necessarily right away.
Housing issues also raise concerns about the demand for renovation providers and contractors, MKM Partners analyst David Bellinger wrote in a research note last week. But third-quarter comparable store sales are likely to have stagnated. And JP Morgan (JPM) analyst Christopher Horvers believes house names “should see a greater degree of delayed negative revisions” by 2023.
Meanwhile, retailers with pricing power, in need-based categories and in control of their margins, are best placed while macro fears are high. Citi (C) analyst Steven Zaccone wrote in a research note dated Oct.31. The fundamentals are “generally mixed to positive in the short term, but the rolling bear thesis is an excess that the trends will eventually get worse.”
Home Depot Earnings
Expectations: A further slowdown was expected in the retailer’s Tuesday report. Home Depot’s third quarter earnings are expected to grow 5% to $ 4.12 per share on revenue growth of 3% to $ 37.95 billion.
Results: Home Depot’s earnings increased 8.2% to $ 4.24 per share, while revenue increased 5.6% to $ 38.87 billion.
Home Depot’s earnings have now grown for 10 consecutive quarters. Year-over-year adjusted earnings growth slowed again after falling to 11% in the second quarter, now a fourth consecutive quarter with earnings of less than 20%. Revenue rose for a sixth consecutive quarter of single-digit or low double-digit earnings.
Sales in the same store increased 4.3% in the third quarter after growing 5.8% in the second quarter. Home Depot is still stuck with bloated inventories, which rose more than 24% year-over-year in the third quarter. But that’s down from 35% in the second quarter.
Home Depot reaffirmed its prospects for 2022 after the results. For the fiscal year, Home Depot still expects average-digit EPS growth with total and comp sales up approximately 3% and an operating margin of 15.4%. Wall Street has predicted Home Depot’s earnings will increase 3.6% and revenue growth 1.8%.
Shares of Home Depot fell 1% before the market Wednesday after the announcement. Stocks were down 2.6% Monday before the earnings report. HD shares have fallen nearly 26% since the start of the year.
Home Depot resumed its 200-day moving average last week. HD stocks are likely to have an underlying base with a buy point of 333.08. Shares may start working on a handle.
Lowe’s earnings growth decelerated in 2022, and the company has had lower or stable revenues over the past two quarters. For the second quarter ending June, Lowe’s earnings estimates exceeded estimates but fell short of revenue. Its EPS increased 9.8% from the same quarter a year ago, to $ 4.67. Revenues were broadly stable, down 0.34% to $ 27.476 billion, down from $ 27.57 billion.
Inventories rose nearly $ 2 billion to $ 19.33 billion for the quarter, up from $ 17.322 billion a year ago. Lowe’s overall reported in-store sales fell 0.3% for the period, while comparable sales in the US fell 0.2%.
Expectations: Lowe’s earnings increased 13% to $ 3.09 per share, which would mark his best gain in a year. A 1% revenue increase, to $ 23.12 billion, would be Lowe’s first quarter of positive revenue since January.
Lowe’s stated its full-year outlook after the second quarter report. The company expects EPS in the upper range of $ 13.10- $ 13.60. And look for sales to fluctuate in the low end of between $ 97 billion and $ 99 billion. Analysts see EPS of $ 13.39 with revenue of $ 98.106 billion.
Lowe’s stock changed little early Tuesday. Shares of him have fallen roughly 2% on Monday ahead of his earnings report on Wednesday, and shares have fallen roughly 21% so far this year. The relative strength of the LOW stock reached a new high before the results, with the Relative Strength Rating reaching 69 on Monday. However, the stock remains deep in an 11-month correction.
Like HD stocks, Lowe’s recently resumed its 200-day line and has an underlying bottom line. The point of purchase is 221.29.
You can follow Harrison Miller for more news and headline updates on Twitter @IBD_Harrison
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