Home Depot tops earnings estimates, buys back $15 billion in stock

Home Depot launched a $15 billion share buyback plan after its second quarter beat expectations. However, the home-improvement retailer warned that shoppers are still wary of spending on big-ticket items and expects sales to decline this year.

Home Depot (ticker: HD ) reported second-quarter earnings of $4.65 per share on Tuesday, compared with $5.05 in the year-ago period. Sales fell 2.0% from a year earlier to $42.9 billion

Analysts had expected profit of $4.45 per share on revenue of $42.2 billion, according to consensus estimates from FactSet.

Same-store sales, a measure of revenue growth at stores open at least a year, fell 2.0%, better than the 3.9% decline expected.

The company approved a new $15 billion share repurchase program, replacing its previous buyback program.

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“Despite strength in categories associated with smaller projects, we saw continued pressure in some big-ticket, discretionary categories,” CEO Ted Decker said in a company statement.

Decker said the company’s medium- to long-term outlook is favorable for its ability to grow shares in the home improvement and fragmented market.

Home Depot reiterated guidance for its sales and comparable sales to fall between 2% and 5% from a year earlier and for earnings per share to decline between 7% and 13%.

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Shares of Home Depot were down 0.6% in premarket trading on Tuesday. Shares are up 4.5% so far this year through Monday’s close.

This is breaking news. Read a preview of Home Depot’s earnings below and check back soon for more analysis.

Home Depot reports earnings on Tuesday. Don’t expect a blowout quarter, analysts say.

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Home Depot expects earnings per share of $4.45 on revenue of $4.45, according to consensus estimates from Wall Street FactSet. Same-store sales, a measure of revenue growth for stores open at least a year, are forecast to fall 3.9%.

How the numbers change could provide clues about the outlook for other mega-retailers. Although some smaller chains have disclosed numbers, Home Depot is the first of the big box stores to do so. Target ( TGT ), Walmart ( WMT ), and Lowe’s (

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LOW ) will continue for the next two weeks.

There’s a good chance Home Depot’s results will meet expectations, analysts say, but it may be unrealistic to expect a rally following the results as higher interest rates encourage Americans to make big-ticket purchases, such as home buying and remodeling.

Management lowered its financial forecasts for the fiscal year ending in January when it reported its first-quarter results, which helped reset expectations. Home Depot currently expects fiscal year sales to fall 2% to 5% from a year earlier, while earnings per share will fall 7% to 13%. The company reiterated the forecast at its June investor day, saying it was unlikely to cut its forecast again this quarter.

“HD/Less has already taken their medicine post-Q1,” Wells Fargo analyst Zachary Fadom wrote in a note to clients. Fadem has a hold rating and a $345 price target, while the stock closed at $329.95 on Monday afternoon. is lagging behind

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S&P 500

with a gain of 4.5% in 2023.

Home Depot’s management team said in June that this would be a “moderating demand” year. The housing market is experiencing a sluggish recovery, with high interest rates putting potential buyers on the sidelines. Add in the effects of inflation, and people are less interested in investing in home improvement projects, Wedbush analyst Seth Basham wrote. Harvard’s leading indicator of remodeling activity predicts that annual home improvement costs will decline at an “accelerating rate” through the first half of 2024.

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“Ongoing reductions in home moves will result in a decline in remodeling and repair activity that typically occurs during home sales,” Carlos Martin, program director of the Remodeling Future Project, said in July. Press liberation “If owners locked into existing homes with high-low mortgage rates continue to renovate to meet changing needs or take advantage of new federal incentives for energy-efficient renovations, the impact may be offset.”

Results from other companies in the home improvement industry paint a similar picture of soft consumer demand in North America. Floor and D├ęcor’s ( FND ) management cut its forecasts for the fiscal year, Masco ( MAS ) said North American faucets demand was “soft” and Whirlpool

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(WHR) noted that equipment demand was flat in the second quarter.

A plus for Home Depot is that some of these companies have seen strong demand in their professional businesses, which require contractors to do what they need. About half of Home Depot’s revenue comes from sales to construction pros, which TD Cowen’s Mak Rakhlenko believes is beneficial. Rakhlenko maintained an outperform rating ahead of the earnings report, raising his price target to $380 from $360.

But even that positive factor can disappear. The National Association of Home Builders recently reported that delinquencies are on the decline. In the latest quarter, Home Depot’s do-it-yourself operation outperformed its pro business as people shifted from large-scale remodeling jobs to smaller projects. Competitor Lowe’s is expanding market share among contractors and steadily catching up to Home Depot.

Investors will also be looking for any commentary from management on the state of the pro business, including job setbacks, as well as updates on how the economic environment is affecting demand from contractors and do-it-yourself customers.

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Analyst sentiment has grown more cautious on stocks in recent months. As of Monday, 54% of analysts rated the stock a buy, up from 71% last August. Meanwhile, the number of hold ratings rose to 43% from 29% a year ago. Three percent of analysts rate the stock either underweight or sell.

A lower number of sell estimates suggest Wall Street is still bullish on the stock in the long term. Housing reinvestment is supported by an aging U.S. housing stock: More than half of homes were built before 1980, Wells Fargo’s Fadem points out.

“This should keep repair and maintenance spending levels under control (i.e. stable) through 2023,” he wrote.

Write to Sabrina Escobar at [email protected]

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