Home Depot bounces back after beating earnings, improving inventory offsets slower implied growth

By Tomi Kilgore

Earnings, total sales and same-store sales extend streaks of beating expectations, gross margin contracts slightly

Shares of Home Depot Inc. rebounded into positive territory on Tuesday after the home improvement retail giant extended its winning streak and improved its inventory position, offsetting a somewhat pessimistic outlook for the quarter. underway as the company has just confirmed its outlook for the full year

“Our results for the quarter reflect continued strong demand for home improvement projects,” Chief Executive Ted Decker said on the post-earnings conference call, according to a FactSet transcript. “While we have seen some deceleration in some products and categories…project activity remains strong across most of our departments.”

Net income for the third fiscal quarter through Oct. 30 rose to $4.34 billion, or $4.24 per share, from $4.13 billion, or $3.94 per share, in the same period. a year ago. The FactSet consensus for earnings per share was $4.12, marking the 10th consecutive quarter the company has exceeded EPS expectations.

Read the Home Depot revenue overview.

Total sales rose 5.6% to $38.87 billion, above the FactSet consensus of $37.95 billion, to beat expectations for the 12th consecutive quarter.

Overall same-store sales growth of 4.3% beat the FactSet consensus for a 3.1% rise, the fifth consecutive beat, and U.S. same-store sales rose 4.5% for exceed growth expectations of 3.0%.

Of the company’s 14 merchandising departments, 11 reported positive same-store sales. Building materials, plumbing, lumber, carpentry, paint and hardware posted above-average sales for the company, while sales of appliances, flooring and interior garden have shrunk.

The average ticket value increased by 8.8% even as the number of transactions decreased by 4.4%, due to price inflation and demand for new and innovative products.

Cost of sales increased more than total sales, rising 5.7% to $23.65 billion, as gross margin contracted to 34.0% from 34.1%.

Merchandise inventories of $25.72 billion were up 25.0% from a year ago, but this is better than the 38.0% growth seen in the second quarter and the increase of 31, 9% in the first trimester.

The (HD) stock jumped 2.2% in morning trade, reversing an earlier post-open decline of up to 1.2% and a pre-market decline of up to 2.6%. The $6.84 price gain added about 45 points to the price of the Dow Jones Industrial Average, which rose 267 points, or 0.8%.

DA Davidson’s Michael Baker reiterated his neutral rating, citing macro concerns, but applauded the company’s “operational prowess” as it posted another strong quarterly result.

“The guidance has been maintained and may imply a slight downward revision to 4Q22, but [Home Depot’s] the track record of exceeding estimates shows that this should not be too much of a concern,” Baker wrote in a note to clients.

The company confirmed its guidance for full-year 2022 EPS growth in the single-digit percentage range and for same-store sales growth of 3.0%. The FactSet EPS consensus of $16.60 implies growth of 6.9%, and the consensus for comparable store sales is for a rise of 3.1%.

Wells Fargo analyst Zachary Fadem said while third-quarter results were “strong across the board,” the confirmed full-year outlook implies a deceleration in growth in the current fourth quarter.

He said it sets “a more realistic bar” for the rest of the year, but also lends credence to the idea that “the environment could soften”.

Fadem reiterated its overweight rating on the stock.

“While the business has performed very well and our consumer has remained resilient, we are navigating in a unique environment,” CEO Decker said on the call. “We cannot predict the impact of the changing macroeconomic environment on our clients going forward. However, we continue to closely monitor elasticities and trends across our business and believe we have the tools, team and experience to manage effectively in any environment.”

The stock has edged down 0.3% over the past three months, while the SPDR Consumer Discretionary Select Sector (XLY) exchange-traded fund fell 14.8% and the Dow fell 0.4% .

-Tomi Kilgore

 

(END) Dow Jones Newswire

15-11-22 1112ET

Copyright (c) 2022 Dow Jones & Company, Inc.