Home improvement retailers Home Depot (HD) and Lowe's (LOW) are scheduled to report results of their third quarters before the market open on Tuesday, November 19, and Wednesday, November 20, 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: Builder confidence in the market for newly-built single-family homes rose three points to 71 in October, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Sentiment levels were at their highest point since February 2018, the NAHB said. “The housing rebound that began in the spring continues, supported by low mortgage rates, solid job growth and a reduction in new home inventory,” said NAHB Chairman Greg Ugalde. Wedbush analyst Seth Basham said home improvement retail sales growth reported by the Census Bureau sequentially improved by +400 bps in August and September following declines in Q2. However, Basham said sales for several larger ticket categories, including appliances, water heaters and flooring, remained sluggish through much of the quarter based on supplier and retailer reports, possibly due partly to extended sales cycles associated with rising prices due to Chinese tariffs, and added that this may weigh on ticket comps for Home Depot and Lowe's.
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. Jefferies analyst Jonathan Matuszewski said his channel checks point to Home Depot outperforming in brick and mortar as well as e-commerce in Q3.
3. GUIDANCE: Home Depot's earnings per share handily beat analysts' expectations in August, with relatively in-line revenue and U.S. same-store sales that increased 3.1%. The company backed its fiscal 2019 EPS view of about $10.03 and said it expects its FY19 sales to grow by approximately 2.3% and SSS to be up approximately 4%. The retailer previously forecast FY19 revenue growth of 3.3% and FY19 SSS growth of 5%. The company cited lower than expected lumber prices and potential impacts from recent tariffs. Lowe's beat on the top and bottom lines for its second quarter, and backed its FY19 adjusted EPS view of $5.45-$5.65, revenue growth guidance of approximately 2% and SSS guidance of about 3%. Nomura Instinet analyst Michael Baker called Lowe's a turnaround story helped by the favorable macro backdrop that should act as a tailwind. Baker believes Lowe's can generate significantly higher earnings as it closes the gap relative to Home Depot. Credit Suisse analyst Seth Sigman expects Lowe's to report inline Q3 U.S. comps with acceleration into Q4 and 2020. While lumber deflation, hurricane compares and a rainier October could add some noise, Wells Fargo analyst Zachary Fadem said that he sees Q3 an unlikely stumbling block for Home Depot, adding that his firm's Q3 checks point to healthy sell-through of full-priced seasonal items, a rational promotional environment, and little reason to back away from acceleration potential in Q4.
Keywords: earnings, quarterly earnings, earnings report, analyst, commentary, housing market, home improvement