Home Depot (NYSE: $HD) beat expectations in the second quarter on August 13, 2024. Analysts had been expecting another muted quarter amid economic headwinds. However, the retailer expects the latter half of the year to record weaker sales amid high interest and uncertainty over interest rates.
Home Depot Surprise Second Quarter Results
In the second quarter of fiscal 2024, Home Depot reported revenue of $43.18 billion, a 0.6% YoY increase, and better than forecasts of $43.06 billion. The figure includes $1.3 billion from its recent SRS Distribution (SRS) buyout. Home Depot reported that comparable sales fell 3.3% and 3.6% in the US for the quarter.
It recorded net earnings of $4.6 billion, $4.6 per diluted share, compared to $4.65 per diluted share the previous year. The EPS was better than the forecast of $4.49 per diluted share.
The company recorded an operating income of $6.5 billion for an operating margin of 15.1%. This was a decline from the $6.6 billion operating income and operating margin of 15.4% reported the previous year.
Muted Full-Year Guidance
Home Depot expects a 3% to 4% decline in full-year comparable sales. Previously, the home improvement retailer had forecast a 1% decline.
Total sales are expected to rise 2.5% to 3.5% due to its SRS Distribution acquisition. Without the sales from SRS, the company would have seen a huge revenue decline for fiscal 2024.
The company expects an operating margin of 13.5% to 13.6% for the full year and a net interest expense of around $2.2 billion. It also expected the full year diluted EPS to fall 2% to 4%.
Consumer Demand Falls Amid Looming Interest Rate Cuts
At the start of July, the Federal Reserve hinted that it could cut interest rates starting in September. For consumers, it signals that they should hold off on any major purchases until interest rates improve. This is especially true for big-ticket remodels that usually require financing.
Interest rate cuts could help turn things around for the retailer. While it will take some time to be felt, its impact in 2025 and beyond could be huge.
Home Depot Stock Performance
On Monday, August 12, Home Depot (HD) stock closed at $345.81, a less than 1% decline this year. However, that is lower than the S&P 500, which has gained 12% in 2024. Following the mixed Q2 results, HD shares were down 2.26% in premarket trading at $338.00 as of 7:21 AM in New York.
The stock’s Monday closing price is below its 50 DMA of $348.03 and above its 200 DMA of $344.50. Its forward P/E ratio of 22.78 aligns with Walmart’s (WMT) peer ratio of 28.49. As such, HD stock is fairly priced.
Analysts forecast a wide range for the stock, with a high of $426 and a low of $318. Based on Monday’s closing price, their average forecast of $386.54 is a 10.87% upside.
Forecasting The Economic Outlook
Home Depot is the first of several major retailers to report earnings. Other retailers releasing their earnings soon are Walmart, Macy’s, and Target.
The earnings figures will provide a clearer picture of the health of American consumers. That could inform the economic outlook, including how likely a recession is.
Home Depot enjoys more stability compared to other retailers. Nearly half of its customers are home professionals, and the other half are DIY customers.
Is Home Depot A Lucrative Buy?
Home Depot’s long-term outlook remains positive. The company has pointed to the country’s aging homes and housing shortage. Analysts have also pointed out that most of Home Depot’s customers are financially healthy and employed, even though they have cut back on improvements.
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