Home Depot Expected to Show Signs of Recovery in Q4 Earnings Report


Analysts Anticipate Modest Improvement Amid Economic Pressures

Home Depot (HD) investors are cautiously optimistic about the home improvement chain's upcoming fourth quarter earnings report, as signs indicate a potential turnaround after a challenging period marked by high interest rates and restrained consumer spending. Despite a significant decline in renovation projects, analysts predict that Home Depot's financial performance for the fourth quarter may show a slight improvement compared to previous quarters.

The market anticipates that Home Depot will announce revenue of approximately $39.11 billion, along with earnings per share of $3.30, reflecting an increase over the prior year's figures. However, same-store sales growth is expected to decline by 1.71%, continuing a troubling trend of eight consecutive quarters of negative growth. This ongoing downturn can be attributed to reduced foot traffic and smaller average transaction sizes, indicating that consumers remain hesitant to commit to larger home improvement projects.

Joe Feldman from Telsey Advisory Group expressed in a note to clients that he expects "soft" same-store sales growth due to the ongoing economic pressures stemming from high inflation, elevated interest rates, and a consumer shift towards services rather than products. Nonetheless, Feldman suggested that modest upside could be possible, given the generally robust retail sales environment across the industry.

Adding to the mix, analysts like Seth Basham from Wedbush noted that Home Depot might benefit from increased sales linked to disasters like hurricanes and wildfires, along with a solid holiday shopping season. Other potential growth drivers include stronger sales in appliances, rising lumber prices, and a possible uptick in demand for larger-ticket items. Home Depot's Pro business segment and recent store openings are expected to contribute positively to the overall performance, with Basham indicating that the integration of SRS Distribution—acquired for $18.25 billion last June—appears to be on track.

Analysts' projections for Home Depot's fourth quarter results reveal a comparison to the previous year’s performance, highlighting key figures such as:

  • Revenue: Expected at $39.11 billion, an increase from $34.79 billion
  • Adjusted Earnings Per Share: Projected at $3.03, up from $2.82
  • Same-Store Sales Growth: Anticipated decline of -1.71%, compared to -3.50%
  • US Same-Store Sales Growth: Estimated at -0.74%, improving from -4.00%
  • Foot Traffic: Expected decrease of -1.02%, an improvement over -2.10%
  • Average Ticket Size: Projected decline of -0.35%, better than -1.30%

For the fiscal year 2024, Wall Street forecasts that Home Depot will report the following results in comparison to the prior year:

  • Revenue: Estimated at $158.8 billion, compared to $152.67 billion
  • Adjusted Earnings Per Share: Expected to be $15.12, slightly higher than $15.11
  • Same-Store Sales Growth: Projected at -2.29%, an improvement from -3.20%
  • US Same-Store Sales Growth: Also anticipated at -2.29%, improving from -3.20%
  • Foot Traffic: Expected decrease of -1.36%, an improvement over -2.90%
  • Average Ticket Size: Projected decline of -1.20%, compared to a smaller decline of -0.30%

The economic landscape remains a critical factor for Home Depot and its competitors, including Lowe's (LOW), which is set to report earnings soon. The recent implementation of tariffs by the Trump administration, including a 10% additional tariff on Chinese imports and a 25% tariff on steel, poses further challenges. Although Home Depot sources over half of its products domestically and from North America, CEO Ed Decker acknowledged that these tariffs will have an impact, and any price increases could affect consumer demand. Decker expressed confidence in the company's ability to navigate these challenges effectively, leveraging its scale and supplier relationships to mitigate the effects compared to other retailers in the industry.

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