DIY store (HD) surpassed second-quarter earnings early Tuesday and reaffirmed the outlook even as unsold inventory piles up. lowe’s (LOW) is on tap Wednesday, with the home improvement retail giants offering some insight into the weakness in the homebuilding and remodeling markets. HD stocks and LOW stocks were lower in premarket trading Tuesday.
The second quarter is seasonally the strongest for construction wholesalers as housing projects pick up in the summer months. Wall Street is forecasting moderate earnings growth for the two companies. But analysts note concerns about a weakening macro background, slowing DIY demand and general weakness in retail.
Home Depot stock; Earnings Results
Home Depot continued its streak of beating analysts’ forecasts with record second-quarter results. The home improvement retailer has beaten quarterly earnings estimates since the first quarter of 2020 and hasn’t missed any sales forecasts since the third quarter of 2019.
Home Depot earnings rose 11.5% to $5.05 per share. Revenue grew 6.5% to $43.79 billion. Watchers expected Home Depot earnings of $4.94 a share on revenue of $43.36 billion.
Comparable store sales were up 5.8% for the period, while US same-store sales were up 5.4%.
The company’s strategy uses physical sales to expand its e-commerce business. In the first quarter, more than half of online orders were handled through a store. And Home Depot is diversifying its customer base. Professional revenue growth outpaced DIY or consumer sales in the quarter.
One concern: Home Depot’s trading inventory rose to $26.09 billion, up more than 35% from a year earlier. That’s a sign that the Dow Jones giant has loaded goods that will pass as homes begin to fall and consumers withdraw from remodeling projects.
Home Depot also confirmed its outlook for 2022. For the fiscal year, Home Depot still expects average single-digit growth in earnings per share, with total sales up about 3%. Wall Street has forecast Home Depot earnings to rise 3.6% and revenues up 1.8%.
HD stocks fell a fraction in premarket trading. Home Depot’s stock is down about 25% so far this year, one of the worst performers in the Dow Jones Industrial Average in 2022.
Shares have gained some ground from their 52-week low in June, but are still trading well below the December high. Home Depot stocks are above the 10-day and 50-day moving averages, but face potential resistance on the 200-day line.
Lowe’s profit example
Analysts see Lowe’s earnings of Mooresville, NC, up 7.8% year over year to $4.58 a share, while revenue grows 2% to $28.14 billion.
In April, Lowe’s reported that first-quarter sales fell 3% over the course of the year due to colder spring weather that puts off DIY projects, which make up 75% of its customer base. CEO Marvin Ellison said the company had already started to see an increase in sales as temperatures turned more favorable in May.
For 2022, Lowe’s expects earnings per share of $13.10-$13.60 on $97 billion-$99 billion in revenue. Analysts expect earnings per share of $13.39 on revenue of $98.106 billion.
Shares fell slightly before Tuesday’s opening.
LOW stocks are down about 20% so far. Like Home Depot’s stock, it has regained ground from its mid-June low. Shares remain far from their 52-week high. LOW stocks are currently trading above the 10-day and 50-day lines but have yet to recover from the 200-day moving average.
Last week, JPMorgan lowered its price target for HD stocks from $355 to $311, but maintained an overweight rating. Analyst Christopher Horvers noted that the “earnings curve continues to deteriorate” for most of the retail sector as consumers face pressures from inflation, spending normalization and housing slowing.
And Citi lowered its LOW stock target from $222 to $205 and downgraded its rating to neutral. Analyst Steven Zaccone said Lowe’s will struggle to expand its margins.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
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