Home deposit (HD) and Lowe’s (LOW) announce third quarter results on Tuesday and Wednesday, respectively, this week. Home improvement retailers provide insight into the state of demand and price inflation in the home construction and renovation markets. Home Depot shares and LOW stocks fell slightly on Monday ahead of their earnings release.
Home prices rose 13% year over year in August, according to the latest data from the CoreLogic S&P Case-Shiller Index. That’s down from July’s 15.6% increase, 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.
Mixed signals across the housing spectrum are challenging the demand outlook for renovation providers and contractors, MKM Partners analyst David Bellinger wrote in a research note last week. But comparable store sales in the third quarter likely remained firm. And JP Morgan (JPM) Analyst Christopher Horvers believes dwelling names “should see more lagged negative reviews” through 2023.
Meanwhile, retailers with pricing power, in needs-based categories and controlling their margins, are best positioned as macro fears run high, Town (C) Analyst Steven Zaccone wrote in an October 31 research note. Fundamentals are “generally mixed to positive in the near term, but the rolling bear thesis is an overhang indicating that trends will eventually worsen.”
Home Depot profits have risen for nine straight quarters after announcing better-than-expected second-quarter results on Aug. 16. Revenue rose 7%, a fifth consecutive quarter of single-digit or double-digit gains.
Same-store sales rose 5.8%, above the consensus of 4.9%. However, Home Depot is struggling with bloated inventory, which is up more than 35% year over year.
Home Depot Profits
Expectations: Further slowing is expected in the retailer’s report on Tuesday. Home Depot’s Q3 earnings are expected to rise 5% to $4.12 per share on revenue growth of 3% to $37.95 billion.
Home Depot reaffirmed its 2022 outlook following its second quarter results. For the year, The Home Depot continues to expect mid-single-digit EPS growth with total and component sales increasing about 3%. Wall Street forecast Home Depot profits to rise 3.6% and revenue to rise 1.8%.
Home Depot stock edged down 2.6% on Monday ahead of its earnings report. HD stocks are down nearly 26% year-to-date.
Lowe’s earnings growth has slowed in 2022 and the company has seen lower or flat revenue for the past two quarters. For its second quarter ending in June, Lowe’s beat earnings estimates but fell short of revenue. Its EPS rose 9.8% from the same quarter a year ago to $4.67. Revenue was essentially flat, falling 0.34% to $27.476 billion from $27.57 billion.
Inventories rose nearly $2 billion to $19.33 billion for the quarter from $17.322 billion a year ago. Lowe’s overall store sales fell 0.3% for the period, while comparable sales in the United States fell 0.2%.
Expectations: Lowe’s earnings are expected to jump 13% to $3.09 per share, which would mark its best gain in a year. A 1% gain in revenue to $23.12 billion would be Lowe’s first positive quarter since January.
Lowe’s confirmed its full-year outlook following the second quarter report. The company expects EPS in the upper range of $13.10 to $13.60. And he’s looking for sales to be in the low range between $97 billion and $99 billion. Analysts estimate EPS to be $13.39 with revenue of $98.106 billion.
Lowe’s stock fell about 2% on Monday ahead of its earnings report on Wednesday, and shares are down about 21% so far this year. The relative strength of the LOW stock hit a new high ahead of the results, with the relative strength rating hitting 69 on Monday. However, the stock remains deep in an 11-month correction.
You can follow Harrison Miller for more stock info and updates on Twitter. @IBD_Harrison
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