Dow Jones hardware heavyweight Home Depot reported lower third-quarter earnings and revenue that slightly beat views Tuesday, but with same-store sales falling for a fourth straight quarter. HD stock jumped Tuesday.
Dow Jones Home Depot Stock: Earnings
Estimates: Analysts expected Home Depot earnings to retreat 12% in the third quarter to $3.75 per share with revenue falling 3% to $37.60 billion. Same-store sales were seen sliding 3.6%, according to FactSet.
Results: Home Depot earnings fell 10% to $3.81 a share, with revenue down 3% to $37.71 billion, the third straight year-over-year declines for both. Same-store sales shrank 3.5%.
Home Depot stock shot up 5.5% to 303.79 Tuesday during market action. On Monday, HD shares closed down 1.2% to 288.07.
Outlook: Home Depot narrowed its prior full-year guidance. It now see EPS sliding 9%-11%, with comps off 3%-4%.
"Our quarterly performance was in line with our expectations," Chief Executive Ted Decker said in the earnings release Tuesday.
"We saw continued customer engagement with smaller projects, and experienced pressure in certain big-ticket, discretionary categories," Decker added.
Home Improvement Struggling
During the thick of the coronavirus pandemic, home improvement retailers turned out to be winners. Low interest rates and cooped up consumers sent the mortgage refinancing trade — and home improvement retailers — into overdrive, as consumers borrowed to upgrade or remodel their homes. More recently, home improvement stocks found favor as defensive plays amid inflation and global recession fears.
In the early part of 2023, Home Depot stock rallied along with other housing-related plays as mortgage rates briefly came off highs. Rates then turned higher, squeezing sales of existing homes, and driving demand to the market for newly built homes. But hardware and home improvement retailers lagged, as higher rates choked off mortgage refinance demand.
Since the beginning of September the Dow Jones stock has dropped more than 13%. On the year, Home Depot stock is down nearly 9%. But interest rates appear to be once again coming off recent highs.
That pullback has stirred a bump in refinance activity. but it occurred too late to have helped Home Depot's third quarter. Data from the National Association of Home Builders (NAHB) last month showed remodeler confidence slipped in Q3, with the index measuring current conditions falling for projects of all sizes. The index gauging future activity — the rate at which leads and inquiries are coming in and the backlog of jobs — also declining.
"While there is still demand for remodeling, we are seeing some customers pull back a bit, especially for larger projects, due to higher prices and increased interest rates," NAHB Remodelers Chair Alan Archuleta said in the Oct. 12 news release.
The home improvement chain has also bolstered security measures this year in response to growing retail theft. Decker told CNBC last month Home Depot has invested more in security guards and lighting in its parking lots. Decker added the company has not had to close any locations due to organized retail crime.
The Dow Jones stock ranks third in IBD's Wholesale-Building Products industry group. Home Depot stock has a 58 Composite Rating out of 99. HD also has a 39 Relative Strength Rating. The EPS Rating for the Dow Jones stock is 77 out of 99.
Lowe's follows Home Depot with Q3 earnings on Nov. 21. Wall Street predicts Lowe's EPS dipping 8% to $3.02 with revenue sliding 11% to $20.87 billion.
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