Home Depot (HD) Posts Another Constructive Quarterly Report On Sturdy Home Improvement Demand
3:27 pm Tuesday, November 15th, 2022
The housing market may be cooling off and inflation may be squeezing consumers’ budgets, but Home Depot (HD) continues to display impressive resilience, delivering another top and bottom-line beat in 3Q22. Although total sales and comparable sales growth has tapered off from the remarkable levels seen during the height of the pandemic, HD’s business hasn’t softened as significantly as many had anticipated. With comparable sales increasing by 4.3% on top of last year’s 6.1% increase, it’s evident that people are still spending healthily on home improvement projects.
Shares of HD had rallied hard into the report, gaining nearly 9% since early November. Many stocks have experienced a resurgence in the wake of last week’s better-than-expected CPI report. HD, though, has benefitted more than most due to its relationship to the rate-sensitive housing market. Easing inflation could result in a less hawkish Fed, which is a positive for both homebuilders and HD. This recent strength in HD may explain why the stock initially saw a sell-the-news reaction to the solid earnings report.
After declining by 3.0% last quarter and by 8.2% in Q1, consumer transactions decreased by 4.3% this quarter. HD wasn’t lapping a difficult yr/yr comparison, either, with consumer transactions down by 5.5% in the year-earlier period. Helping to offset this slide in consumer transactions was a bump higher in average ticket, which was up by 8.8% to $89.67.
Inflation and HD’s corresponding price increases are also driving its average ticket higher.
Also easing our concern is the fact that merchandise inventories actually decreased by roughly $400 mln sequentially.
Overall, HD performed quite well in Q3 as demand for home improvement products remains sturdy. The company’s upside results, and reaffirmation of guidance, also bodes well for rival Lowe’s (LOW), which is slated to issue Q3 results before the open tomorrow morning.
