Earnings Preview: What to look for when Home Depot reports Q3 results

The performance of Home Depot Inc. (NYSE: HD) was not very impressive in the first half as the demand for home improvement products remained under pressure from the slowdown in consumer spending. There has been a dip in discretionary spending on items like home renovation amid concerns about elevated interest rates and economic uncertainties.  

Home Depot’s stock, which has been on a losing streak for quite some time, has regained some momentum ahead of the earnings. It has mostly underperformed the broad market in 2023 and is trading well below the record highs of 2021. If the company’s past performance is any indication, it would come out of the downturn which is cyclical in nature. Considering the low valuation, the stock could be an ideal investment option for long-term investors. A key factor that makes it an investor’s favorite is the regular dividend hikes and better-than-average yield.

Q3 Report on Tap

Home Depot’s third-quarter report is slated for release on November 14 at 6:00 a.m. ET. On average, analysts following the company forecast Q3 earnings of $3.58 per share, compared to $4.24 per share in the comparable period of last year. The consensus revenue estimate is $35.66 billion. The top line will likely be impacted by softness in customer traffic while higher costs might weigh on margins.

A few months ago, the company’s leadership in a statement said it expects full-year sales and earnings to decline year-over-year, citing the muted demand from professional contractors and do-it-yourself customers, which account for a major chunk of sales.

From Home Depot’s Q2 2023 earnings call:

“Going forward, as we continue to navigate a unique and uncertain environment, our focus continues to be on operating with agility as we respond to evolving customer dynamics while also driving productivity and efficiency throughout the business. …we operate in a large and fragmented $950 billion-plus addressable market. We remain committed to growing the business and believe we are well positioned to continue capturing market share.”

Mixed Outcome

Both earnings and sales beat analysts’ forecasts in the June quarter, after missing in the preceding quarter. The company has an impressive track record of delivering better-than-expected quarterly results. Second-quarter earnings declined to $4.65 per share on net sales of $42.9 billion, which is down 2% from last year. Comparable sales growth decelerated to 2% year-over-year in Q2 from 4.5% in the prior quarter.

HD Supply, Home Depot’s industrial supply division, recently acquired flooring solutions provider Redi Carpet as part of the efforts to expand the portfolio.  

Home Depot’s stock closed the last trading session slightly higher but stayed below its long-term average. It has lost 7% since the beginning of the year.