The upcoming release of Home Depot, Inc.’s (NYSE:HD) second-quarter fiscal 2023 results on August 15, before the market opens, has prompted speculation regarding the potential outcome. There is an expectation of a decline in both its top and bottom lines for the reported quarter. The Consensus Estimate for its fiscal Q2 earnings stands at $4.46 per share, reflecting an 11.7% decrease from the corresponding figure of the previous year. This consensus estimate has remained constant over the past 30 days. Home Depot stock is in an upward trend: it has jumped by 4.8% over the past six months.
Projections indicate that the company’s quarterly revenues might amount to $42.2 billion, marking a decline of 3.5% compared to the figures reported in the corresponding quarter of the preceding year.
During the previous reporting period, Home Depot managed to deliver an earnings surprise of 0.5%. On average, the leading home improvement retailer achieved an earnings surprise of 1.66% across the past four quarters.
Key Considerations
Home Depot’s performance in the second quarter of fiscal 2023 could be influenced by subdued trends in consumer spending, normalized transaction patterns, and ongoing investments aimed at gaining a larger share of the market. On the earnings call for the last reporting quarter, the company highlighted the gradual normalization of transactions, attributed to a shift in consumer spending from goods to services. The company acknowledged that experts anticipated stagnant real economic growth and consumer spending in 2023, a trend likely to manifest in the fiscal Q2 results.
Furthermore, the results for the company’s fiscal second quarter might bear the brunt of persistently negative impacts stemming from deflation in lumber prices, leading to softened comparable sales. In the initial quarter of the fiscal year, Home Depot faced a considerable drop in lumber prices relative to the same period of the previous year. The influence of lumber on comparable sales was negative, resulting in a 220 basis point impact in the first fiscal quarter. This trend is expected to have extended its impact to comparable sales in the impending quarter.
It is projected that comparable sales for the fiscal Q2 could witness a contraction of 5.1%, largely due to lumber deflation, ongoing deceleration across various departments, and pressures within significant big-ticket discretionary categories. Deflation in core commodity segments, particularly in lumber, is forecasted to have adversely affected the company’s average ticket growth during the fiscal second quarter.
However, Home Depot has been reaping significant benefits from the strategic execution of its “One Home Depot” plan, which centers on expanding the supply chain, investments in technology, and enhancements in the digital realm. The company’s integrated retail strategy and robust technology infrastructure have consistently propelled web traffic in recent quarters, potentially bolstering digital sales in the impending quarter.
Within the fiscal second quarter, HD is projected to have witnessed growth within the Pro and DIY customer categories, coupled with sustained digital momentum.
In summation, the anticipation of Home Depot’s Q2 earnings performance is characterized by the backdrop of diminishing demand trends. While the company may face challenges from subdued consumer spending and lumber deflation, its strategic initiatives and digital prowess could offer a buffer against these headwinds.
Home Depot Stock Performance
Home Depot stock has gained 4.8% year-to-date, while the S&P 500 has risen by 17.6% for the same period.
Featured Image: Unsplash @ Jacob Rice
