Earnings season continues to wind down, with the bulk of S&P 500 companies already revealing quarterly results. The recent performance by Home Depot HD, a home improvement retailer, has ignited optimism among investors.
As Home Depot takes the spotlight, all eyes now turn to its competitor Lowe’s LOW, scheduled to release its quarterly results on August 20th.
Home Depot Shows Resilience
Home Depot (HD) outperformed the Zacks Consensus EPS estimate by 2.9% and reported sales 1.4% above the consensus. While earnings saw a slight decline from the year-ago period, sales managed a modest 0.6% increase.
Post-pandemic, the company’s sales growth has plateaued. Initially boosted by elevated demand during the COVID era, especially for home improvement projects like porches and fences, the trend has notably slowed down.
In navigating this trend, Ted Decker, CEO of Home Depot, highlighted, ‘The underlying long-term fundamentals supporting home improvement demand are strong.’
Decker acknowledged the impact of macroeconomic factors on consumer behavior, stating, ‘During the quarter, higher interest rates and greater macro-economic uncertainty pressured consumer demand more broadly, resulting in weaker spend across home improvement projects.’
While facing margin pressures affecting profitability, Home Depot has begun to witness a positive shift in recent periods, as illustrated in the trailing twelve-month chart.
Lowe’s Expected to Face Cooling Growth
Anticipation surrounds Lowe’s LOW as earnings expectations have slightly dipped in recent months following Home Depot’s quarterly disclosure. The company is set to experience a growth slowdown, with projected earnings down 13% and sales 4% lower.
Similar to Home Depot, Lowe’s has encountered a decline in demand, reflected in a 4% year-over-year drop in comparable store sales during the latest period, notably in big-ticket discretionary items.
Given the industry sentiment post-Home Depot announcement, it’s plausible that Lowe’s witnessed a similar trend of reduced spending on big-ticket items. Lowe’s is currently rated a Zacks Rank #4 (Sell), with earnings estimates witnessing a downward shift in recent months.
Summarizing the Situation
Home improvement leader Home Depot HD showcased a favorable quarterly performance, with its stock reacting positively post-earnings announcement. Despite no major alarms in their report, challenges persist, particularly in the slowdown of big-ticket items.
Similar patterns are expected from Lowe’s LOW in its upcoming presentation, with the company also encountering reduced big-ticket spending. Projections for Lowe’s indicate a downturn, with both earnings and revenues projected to decrease year-over-year.