We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Can Home Depot's (HD) Strategies Help Overcome Near-Term Woes?
Read MoreHide Full Article
The Home Depot Inc. (HD - Free Report) has been witnessing continued pressure in some big-ticket, discretionary categories, a trend which started in fourth-quarter fiscal 2022. Deflation of core commodity categories, particularly in lumber prices, has been affecting the top-line performance.
Home Depot reported dismal second-quarter fiscal 2023 results, with the top and bottom lines declining year over year. However, earnings and sales surpassed the Zacks Consensus Estimate. Results have been impacted by a more broad-based pressure across the business, driven by softened demand versus expectations.
The company’s fiscal second quarter comparable sales (comps) were impacted by continued deceleration across many departments and pressures in several big-ticket discretionary categories. Both DIY and pro customers were negative in the fiscal second quarter.
Soft Q2 Performance
Home Depot’s overall comps and the United States comps declined 2%. Comps were impacted by a decline in customer transactions, partly offset by a rise in average ticket. The company noted that all three U.S. divisions reported negative low-single-digit comps in the fiscal second quarter. Only six of the 14 merchandising categories reported positive comps, including building materials, outdoor garden, hardware, plumbing, tools and millwork.
While the company witnessed improvement in weather conditions from the prior quarter, pressures from soft sales in big-ticket discretionary categories continued to impact comps. Customer transactions declined 1.8% year over year, while the average ticket rose 0.1%. Sales per retail square foot were down 2.3%.
Excluding core commodities, comp average ticket was mainly impacted by inflation across several product categories and the demand for new and innovative products. Deflation from core commodity categories, primarily in lumber, negatively impacted the company’s average ticket growth by 160 basis points in the fiscal second quarter. Lumber prices declined significantly from the year-ago quarter’s levels. Negative lumber price offset by improvement in unit productivity had an 85-basis points impact on comps.
In second-quarter fiscal 2023, Home Depot recorded a 23.1% increase in interest expenses, mainly due to interest charged on its floating rate debt and a higher long-term debt position compared with the prior-year quarter’s figure. As of Jul 30, 2023, the company’s long-term debt of $40,754 million increased 3.8% year over year. Management expects interest expenses for fiscal 2023 to be $1.8 billion.
Driven by the continued soft trends in big-ticket, discretionary categories, Home Depot retained its bleak view for fiscal 2023 sales and earnings. Home Depot anticipates sales and comparable sales to decline 2-5% year over year in fiscal 2023. The operating margin rate is estimated at 14-14.3%. The company expects an effective tax rate of 24.5% in fiscal 2023. HD estimates earnings per share to move down 7-13% year over year in fiscal 2023.
Is Home Depot Well-Placed for the Long-Term?
Home Depot stands to capitalize on the benefits of the “One Home Depot” investment plan, which focuses on expanding supply-chain facilities, technology investments and enhancement to the digital experience. The interconnected retail strategy and underlying technology infrastructure have helped consistently boost web traffic for the past few quarters.
Enhanced search capabilities and improved Pro site experience, the more robust fulfillment capabilities have driven the company’s online conversions. The company’s strategy of providing an interconnected experience resonates well with customers, as around 50% of the online orders were fulfilled through stores in the fiscal second quarter.
Home Depot remains focused on expanding its business and is positioned to capture market share. The management noted that it witnessed improved customer engagement in the home improvement projects, particularly for small projects, in the fiscal second quarter.
In the future, the company will remain focused on navigating the unique and uncertain environment by operating with agility amid evolving consumer trends. It also expects to drive productivity and efficiency throughout the business. As a result, it expects to deliver on its previously announced $500 million in annualized cost savings in 2024.
Shares of Home Depot have risen 10.4% in the past three months compared with the industry’s growth of 7.4%. The Zacks Rank #3 (Hold) stock’s performance also compared favorably compared with the Retail-Wholesale sector’s gain of 6.2% and the S&P 500’s growth of 3.7% in the same period.
Image Source: Zacks Investment Research
Stocks to Bet On
We highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Builders FirstSource (BLDR - Free Report) , American Eagle Outfitters (AEO - Free Report) and Abercrombie & Fitch (ANF - Free Report) .
Builders FirstSource is the largest supplier of building materials, manufactured components and construction services to professional homebuilders, sub-contractors, remodelers and consumers. BLDR currently sports a Zacks Rank #1 (Strong Buy). The stock has risen 14% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Builders FirstSource’s current financial-year sales and earnings per share suggests declines of 23.3% and 29.6%, respectively, from the year-ago reported figures. BLDR has a trailing four-quarter earnings surprise of 52.2% on average.
American Eagle, a specialty retailer of casual apparel, accessories and footwear for men and women, currently flaunts a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 43.2% on average. Shares of AEO have rallied 41.1% in the past three months.
The Zacks Consensus Estimate for American Eagle’s current financial-year sales and earnings per share suggests growth of 0.06% and 8.3%, respectively, from the year-ago reported numbers.
Abercrombie, a specialty retailer of premium, high-quality casual apparel for men, women, and kids, sports a Zacks Rank #1. ANF has a trailing four-quarter earnings surprise of 724.8%, on average. The stock has rallied 59.5% in the past three months.
The Zacks Consensus Estimate for Abercrombie’s current financial-year sales suggests growth of 10.1% from the year-ago reported figures. ANF’s earnings estimate for the current fiscal year is pegged at $4.03 per share, suggesting a significant growth from 25 cents reported in the year-ago quarter.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Can Home Depot's (HD) Strategies Help Overcome Near-Term Woes?
The Home Depot Inc. (HD - Free Report) has been witnessing continued pressure in some big-ticket, discretionary categories, a trend which started in fourth-quarter fiscal 2022. Deflation of core commodity categories, particularly in lumber prices, has been affecting the top-line performance.
Home Depot reported dismal second-quarter fiscal 2023 results, with the top and bottom lines declining year over year. However, earnings and sales surpassed the Zacks Consensus Estimate. Results have been impacted by a more broad-based pressure across the business, driven by softened demand versus expectations.
The company’s fiscal second quarter comparable sales (comps) were impacted by continued deceleration across many departments and pressures in several big-ticket discretionary categories. Both DIY and pro customers were negative in the fiscal second quarter.
Soft Q2 Performance
Home Depot’s overall comps and the United States comps declined 2%. Comps were impacted by a decline in customer transactions, partly offset by a rise in average ticket. The company noted that all three U.S. divisions reported negative low-single-digit comps in the fiscal second quarter. Only six of the 14 merchandising categories reported positive comps, including building materials, outdoor garden, hardware, plumbing, tools and millwork.
While the company witnessed improvement in weather conditions from the prior quarter, pressures from soft sales in big-ticket discretionary categories continued to impact comps. Customer transactions declined 1.8% year over year, while the average ticket rose 0.1%. Sales per retail square foot were down 2.3%.
Excluding core commodities, comp average ticket was mainly impacted by inflation across several product categories and the demand for new and innovative products. Deflation from core commodity categories, primarily in lumber, negatively impacted the company’s average ticket growth by 160 basis points in the fiscal second quarter. Lumber prices declined significantly from the year-ago quarter’s levels. Negative lumber price offset by improvement in unit productivity had an 85-basis points impact on comps.
In second-quarter fiscal 2023, Home Depot recorded a 23.1% increase in interest expenses, mainly due to interest charged on its floating rate debt and a higher long-term debt position compared with the prior-year quarter’s figure. As of Jul 30, 2023, the company’s long-term debt of $40,754 million increased 3.8% year over year. Management expects interest expenses for fiscal 2023 to be $1.8 billion.
Driven by the continued soft trends in big-ticket, discretionary categories, Home Depot retained its bleak view for fiscal 2023 sales and earnings. Home Depot anticipates sales and comparable sales to decline 2-5% year over year in fiscal 2023. The operating margin rate is estimated at 14-14.3%. The company expects an effective tax rate of 24.5% in fiscal 2023. HD estimates earnings per share to move down 7-13% year over year in fiscal 2023.
Is Home Depot Well-Placed for the Long-Term?
Home Depot stands to capitalize on the benefits of the “One Home Depot” investment plan, which focuses on expanding supply-chain facilities, technology investments and enhancement to the digital experience. The interconnected retail strategy and underlying technology infrastructure have helped consistently boost web traffic for the past few quarters.
Enhanced search capabilities and improved Pro site experience, the more robust fulfillment capabilities have driven the company’s online conversions. The company’s strategy of providing an interconnected experience resonates well with customers, as around 50% of the online orders were fulfilled through stores in the fiscal second quarter.
Home Depot remains focused on expanding its business and is positioned to capture market share. The management noted that it witnessed improved customer engagement in the home improvement projects, particularly for small projects, in the fiscal second quarter.
In the future, the company will remain focused on navigating the unique and uncertain environment by operating with agility amid evolving consumer trends. It also expects to drive productivity and efficiency throughout the business. As a result, it expects to deliver on its previously announced $500 million in annualized cost savings in 2024.
Shares of Home Depot have risen 10.4% in the past three months compared with the industry’s growth of 7.4%. The Zacks Rank #3 (Hold) stock’s performance also compared favorably compared with the Retail-Wholesale sector’s gain of 6.2% and the S&P 500’s growth of 3.7% in the same period.
Image Source: Zacks Investment Research
Stocks to Bet On
We highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Builders FirstSource (BLDR - Free Report) , American Eagle Outfitters (AEO - Free Report) and Abercrombie & Fitch (ANF - Free Report) .
Builders FirstSource is the largest supplier of building materials, manufactured components and construction services to professional homebuilders, sub-contractors, remodelers and consumers. BLDR currently sports a Zacks Rank #1 (Strong Buy). The stock has risen 14% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Builders FirstSource’s current financial-year sales and earnings per share suggests declines of 23.3% and 29.6%, respectively, from the year-ago reported figures. BLDR has a trailing four-quarter earnings surprise of 52.2% on average.
American Eagle, a specialty retailer of casual apparel, accessories and footwear for men and women, currently flaunts a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 43.2% on average. Shares of AEO have rallied 41.1% in the past three months.
The Zacks Consensus Estimate for American Eagle’s current financial-year sales and earnings per share suggests growth of 0.06% and 8.3%, respectively, from the year-ago reported numbers.
Abercrombie, a specialty retailer of premium, high-quality casual apparel for men, women, and kids, sports a Zacks Rank #1. ANF has a trailing four-quarter earnings surprise of 724.8%, on average. The stock has rallied 59.5% in the past three months.
The Zacks Consensus Estimate for Abercrombie’s current financial-year sales suggests growth of 10.1% from the year-ago reported figures. ANF’s earnings estimate for the current fiscal year is pegged at $4.03 per share, suggesting a significant growth from 25 cents reported in the year-ago quarter.