Home improvement retailers Home Depot (HD) and Lowe's (LOW) are scheduled to report results of their second quarters before the market open on Tuesday, August 20, and Wednesday, August 21, 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 July 16, the NAHB said builder confidence was up one point to 65 in July. “Builders report solid demand for single-family homes. However, they continue to grapple with labor shortages, a dearth of buildable lots and rising construction costs that are making it increasingly challenging to build homes at affordable price points relative to buyer incomes,” said NAHB Chairman Greg Ugalde. Loop Capital analyst Laura Champine said discussions with Home Depot's management suggest that the demand outlook for home improvement remains mixed, with downside risks to the company's top-line guidance from lumber deflation in FY19 and some upside in remodeling activity in the second half and beyond from lower interest rates.
2. 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. In early August, Lowe's notified "thousands" of workers in its roughly 2,000 U.S. stores that their roles were being eliminated as the company outsources jobs such as assembling and janitorial services, reported The Wall Street Journal's Sarah Nassauer.
3. WEATHER: Stifel analyst John Baugh lowered his comp and EPS estimates slightly for Home Depot ahead of its Q2 report, citing adverse weather, delayed recovery in housing activity, commodity lumber deflation and weak home improvement spending. However, Home Depot shares are essentially at his previous price target of $210 and "faced with the question of changing a rating versus increasing the target price," he decided on raising his price target to $230 and kept a Buy rating on the stock.
4. GUIDANCE: Lowe's earnings per share missed analysts' expectations for the first quarter and it lowered its fiscal 2019 EPS view to $5.45-$5.65 from $6.00-$6.10. The retailer backed its revenue growth view of approximately 2% and SSS guidance of up approximately 3%. Analysts currently expect Lowe's to report FY19 EPS of $5.57 on revenue of $72.51B. Home Depot beat on the top and bottom lines for its first quarter in May, despite declining lumber prices and wet weather in late winter. The company backed its FY19 forecast of $10.03 for EPS, sales growth of approximately 3.3% and SSS growth of approximately 5%. Analysts currently expect EPS of $10.13 on revenue of $111.32B. At the time, CFO Carol Tome said said February was the only month of the quarter with negative same-store sales both globally and domestically.
Keywords: earnings, quarterly earnings, earnings report, analyst, commentary, housing market, home improvement