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Why Is Home Depot (HD) Down 15.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Home Depot (HD - Free Report) . Shares have lost about 15.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Home Depot due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Home Depot Q2 Earnings & Sales Beat, Margins Soft

Home Depothas posted second-quarter fiscal 2022 results, wherein earnings and sales beat the Zacks Consensus Estimate and improved year over year. The company’s results represented the highest ever sales and earnings in its history. It gained from continued strong demand for home-improvement projects, robust housing market trends and ongoing investments. HD reiterated guidance for fiscal 2022.

However, Home Depot’s margins continued to contract in the reported quarter. HD reported a significant decline in the operating margin in the fiscal second quarter. Also, lower customer transactions hurt sales to some extent.

Home Depot's earnings of $5.05 per share improved 11.5% from $4.53 registered in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate of $4.95.

Net sales advanced 6.5% to $43,792 million from $37,500 million in the year-ago quarter and beat the Zacks Consensus Estimate of $43,346 million. Sales benefited from continued robust demand for home-improvement projects.

HD’s overall comparable sales (comps) grew 5.8%, with a 5.4% improvement in the United States. In the reported quarter, comps were aided by a 9.1% rise in average ticket. This was partly offset by a 3% decline in customer transactions. Sales per square foot improved 5.7% in the reported quarter.

In dollar terms, the gross profit increased 6% to $14,483 million from $13,665 million in the year-ago quarter, primarily driven by robust sales growth. This was partly offset by a 6.8% increase in the cost of goods sold. The gross profit margin contracted 10 basis points (bps) to 33.1% from 33.2% in the year-ago quarter.

The operating income increased 8.6% to $7,210 million, while the operating margin expanded 40 bps to 16.5%. Despite the gross margin contraction, operating margin gained from operating expense leverage in the quarter. Total operating expense, as a percentage of sales, declined 50 bps to 16.6% in the quarter.

Balance Sheet and Cash Flow

Home Depot ended second-quarter fiscal 2022 with cash and cash equivalents of $1,259 million, long-term debt (excluding current maturities) of $39,271 million and shareholders' equity of $237 million. In first-half fiscal 2022, the company generated $7,182 million of net cash from operations.

In first-half fiscal 2022, HD paid out cash dividends of $3,910 million and repurchased shares worth $3,962 million.

Fiscal 2022 View

Home Depot reiterated guidance for fiscal 2022. HD anticipates sales and comps growth of 3% for fiscal 2022. The operating margin is estimated to be 15.4%. Net interest expenses are expected to be $1.6 billion. It continues to expect an effective tax rate of 24.6%. HD estimates earnings per share growth in mid-single digits for fiscal 2022.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, Home Depot has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Home Depot has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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