Home Depot Shares Are Up 4% After Solid Results

Ticker Symbol: HD

Hardware store and retailer Home Depot’s shares are up almost 4% in mid-morning trading, after the company posted strong second quarter earnings results. Despite worry that a cooling housing market would present strong headwinds to the company’s business, Home Depot reiterated its previous guidance of sales growth of 3% for the fiscal year as price increases have offset declining store visits. Shares were last exchanging hands at $326.75, for a total return of -21% on a year-to-date basis.   

Comparable sales, the critical key performance metric for retailers, were up 5.8% year over year, well ahead of the average analyst expectation for an increase of 4.5%. U.S. comparable sales were up 5.4%, versus the 3.4% increase in the same period in 2021. Analysts were looking for an increase of 3%. Total net revenue was $43.79 billion, up 6.5% year over year, and ahead of the estimated $43.55 billion. The average ticket sale was $90 during the three-month period, up 9.1% from last year.

The company reported adjusted earnings of $5.05 per share, ahead of the $4.98 expected by Wall Street. This represented a strong year over year growth of 11.5% in profits. Home Depot’s net income margin for the quarter improved to an impressive 11.8% versus the 11.2% margin during the year ago period.  Most retailers have been reporting a decline in operating margins and thus a decline in profits on a per share basis.

Home Depot was a big beneficiary of the pandemic housing boom, when low interest rates and telework allowed people to purchase new and bigger homes. Increased relocations and home-office construction caused a spike in most home-building goods. Since then, the Federal Reserve has started tightening monetary policy by increasing interest rates and reducing market liquidity to deal with surging inflation. That has caused mortgage rates to spike and U.S. new home construction to decline sharply.

Management indicated in the earnings call, however, that a strong backlog of construction projections and home improvement works would allow sales trends to continue in the foreseeable future. Unlike its direct competitor Lowe’s, Home Depot’s sales are more oriented to professional contractors who are less likely to reduce spending than do-it-yourself consumers. Despite these positives, the retailer also reported the fifth straight quarter of traffic decline to the store, with total tickets processed dropping 3% from 2021.

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