December 8, 2022

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Home Depot (HD) Q2 Earnings: What to Expect

Home Depot (HD), the world’s largest home improvement retailer by revenue, is set to report second quarter fiscal 2021 earnings results before the opening bell Tuesday. Driven by a consistent rise in new home construction and home-related remodeling projects, Home Depot has established a strong track record for beating consensus estimates on both the top and bottom lines.

Accordingly, Home Depot stock has responded favorably, soaring 26% year to date, besting the 18% rise in the S&P 500 index. The shares have enjoyed a strong run over the past six months, rising more than 20% compared to 13% rise in the S&P 500 index. But can the housing market remain resilient? One of the major effects of the pandemic has been higher demand for homeownership as renters look to exit overcrowded cities.

Higher homeownership, sparked by record-low mortgage rates for mortgage loans, caused a surge in demand for home improvement products and services. The concern is whether all that growth has been pulled forward, meaning the pandemic-driven revenue has already been spent.

“While we remain bullish on the duration of home improvement demand, accelerating cost pressures could curb the magnitude of second-half revisions against steep compares,” noted analysts at Baird & Company.

The firm noted that revenue growth has indeed moderated, but the two-year growth rate is still at around 30%. And the Baird analyst believes the expected 5% rise for revenue in this quarter is seen as conservative. Operating some 2300 stores across the United States, Canada and Mexico, Home Depot benefits from both its brick-and-mortar stores and its online business, ensuring long-term growth and profitability. The company’s guidance on Tuesday will nonetheless be closely watched to determine the sustainability of the housing market.

In the three months that ended July, the Atlanta, GA.-based company is expected to earn $4.39 per share on revenue of $40.4 billion. This compares to the year-ago quarter when earnings were $4.02 per share on revenue of $38.05 billion. For the full year, ending January, earnings of $14.22 per share would rise 19% year over year from $11.94, while full-year revenue of the $143.45 billion would rise 8.6% year over year.

Aside from expanding its product offerings and its improving delivery and fulfillment capabilities, where it aims to increase both its two-day and one-day shipping initiatives, Home Depot has put $11 billion towards its digital capabilities through its One Home Depot program. However, the fact that Home Depot’s fiscal year EPS is expected to grow just 8% which is about 50% lower year over year, is one example of the tougher comparisons the company will be facing in 2021.

In the first quarter, Home Depot delivered results in that easily beat expectations on both the top and bottom lines. First quarter revenue of $37.5 billion rose 32.7% year over year beating estimates by $2.87 billion. The bottom line was also strong, coming in at $3.86 per share, beating by 81 cents. Just as impressive was the same-store sales figure of 31%, topping consensus of 20% increase.

The net income of $4.15 billion, owing to the 14.31% operating margin, underscores the strength of Home Depot’s profitability. As does the company’s reported free cash flow of $5.79 billion and adjusted operating margin which came in at 15.4% of revenue. On Tuesday investors will want to see whether Home Depot can build on these numbers or whether it will suffer from home-improvement fatigue.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.