Home Depot and Lowe's are scheduled to report results of their first quarters this week
Home improvement retailers Home Depot (HD) and Lowe's (LOW) are scheduled to report results of their first quarters before the market open on Tuesday, May 21, and Wednesday, May 22, respectively. Home Depot's conference call is scheduled for 9:00 am EDT on Tuesday and Lowe's will hold its quarterly call on Wednesday at 9:00 am EDT. What to watch for:
1. HOUSING MARKET COMMENTARY: On May 15, the NAHB said builder confidence was up three points to 66 in May. "Builders are busy catching up after a wet winter and many characterize sales as solid, driven by improved demand and ongoing low overall supply," said NAHB Chairman Greg Ugalde. "However, affordability challenges persist and remain a big impediment to stronger sales." In April, Morgan Stanley analyst Simeon Gutman raised his price target on Home Depot to $210 and hiked his target on Lowe's to $123 after the firm's AlphaWise Contractor Survey pointed to "tepid home improvement activity" over the past three months but 54% of those surveyed said they expect activity to improve over the next three months.
2. 'ADVERSE' SPRING WEATHER: RBC Capital analyst Scot Ciccarelli lowered his price targets on Home Depot to $217 and Lowe's to $120 to reflect the adverse weather related impact as well as moderating macro trends. The analyst cited moderation in home price growth and Private Fixed Residential Investment trends, warning that while some home sales will be pushed into Q2, the comparable in the quarter from last year is "sizable." Ciccarelli added that after nearly a decade of outperformance, earnings growth rates of 15%-20% for the home improvement industry may be over. To reflect "not-so-cooperative" weather and a softer backdrop following his firm's annual Spring tours, JPMorgan analyst Christopher Horvers lowered his U.S. Q1 comp estimate for Home Depot to 3.7% from 4% and for Lowe's to 2.7% from 3.2%.
3. COMPETITION: Analysts and investors will listen for comments on how the home improvement retailers view competition with online retailers like Amazon (AMZN). Home Depot has been spending aggressively to bulk up its e-commerce business and narrow the delivery window. Last July, Home Depot said it planned to spend $1.2B over the next five years on its supply chain. As Sears' (SHLD) store base continues to shrink, and with J.C. Penney (JCP) pulling out of the appliance category, Home Depot is expected to continue to take a larger share of that market.
4. GUIDANCE: Lowe's reported a mixed Q4 in February, but hinted at early signs of strength in its spring business and continued strength in the U.S. in 2019 and backed its fiscal 2019 EPS view of $6.00-$6.10 on revenue growth of approximately 2% and SSS guidance of up approximately 3%. Analysts currently expect Lowe's to report FY19 EPS of $6.05 on revenue of $72.44. Home Depot also reported a mixed Q4, as bad winter weather and a cooling real estate market in the U.S. hurt the home improvement retailer during the quarter. Home Depot’s outlook for 2019 also wasn't as strong as some analysts were expecting, as the state of the housing market could still pose challenges for the industry in the year ahead. For the year, Home Depot sees FY19 EPS of $10.03, sales growth of approximately 3.3% and SSS growth of approximately 5%. Analysts currently expect EPS of $10.09 on revenue of $111.52B. CEO Craig Menear said "the health of the economy and the consumer, as well as the momentum of our strategic investments" should help the retailer meet its targets. Baird analyst Peter Benedict is "increasingly comfortable" with Q1 comp expectations for Home Depot and Lowe's after his firm's channel checks on early spring seasonal demand have been "positive." Further, broader indicators of industry sales suggest improved trends as Q1 progressed, Benedict said.