Home Depot (HD) stock is struggling for direction Tuesday after the home improvement retailer reported higher-than-expected results for its second quarter but warned of weaker consumer demand.
In the three months ended July 28, Home Depot's revenue increased 0.6% year-over-year to $43.2 billion, helped by its recent acquisition of SRS Distribution, which contributed $1.3 billion of revenue in the quarter. Its earnings per share (EPS) decreased by a penny from the year-ago period to $4.67.
Comparable sales for the quarter were down 3.3%, including a 3.6% drop in the United States.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
"The underlying long-term fundamentals supporting home improvement demand are strong," said Home Depot CEO Ted Decker in a statement. "During the quarter, higher interest rates and greater macro-economic uncertainty pressured consumer demand more broadly, resulting in weaker spend across home improvement projects. However, the team continued to navigate this unique environment while executing at a high level."
Home Depot's headline results beat analysts' expectations. Wall Street was anticipating revenue of $43.1 billion and earnings of $4.49 per share, according to CNBC. However, the comparable sales result was far worse than the 2.1% decline analysts had forecasted.
As a result of its performance in the first half and its recently completed acquisition of SRS Distribution, Home Depot updated its full-year outlook, which includes a 53rd week. The company now anticipates revenue growth in the range of 2.5% to 3.5% and earnings per share to increase between 1% to 3%. This compares with its previous forecast for revenue and EPS growth of approximately 1% apiece.
Home Depot also revised its comparable sales outlook, now anticipating a decline of 3% to 4%. The company said a 3% decline "implies a consumer demand environment consistent with the first half of fiscal 2024" while a 4% decline "implies incremental pressure on consumer demand." The company had previously forecasted comparable sales to decline approximately 1%.
Is Home Depot stock a buy, sell or hold?
Home Depot has struggled on the price charts this year, up a slight 1% on a total return basis (price change plus dividends) vs the S&P 500's 13% return. Still, Wall Street is bullish on blue chip stock.
According to S&P Global Market Intelligence, the average analyst target price for HD stock is $383.08, representing implied upside of more than 10% to current levels. Meanwhile, the consensus recommendation is a Buy.
Financial services firm Jefferies is one of the more bullish outfits on the Dow Jones stock with a Buy rating and $426 price target.
"A noisy quarter given the six-week sales contribution from recently acquired SRS, but nonetheless, the underlying trend is clear: higher interest rates and greater macroeconomic uncertainty pressured weaker spend across home improvement projects during the quarter," Jefferies analyst Jonathan Matuszewski said in a note this morning.
Jefferies' $426 price target sits almost 23% above HD's current price.
Related Content
-
Social Security Will Continue Sending Paper Checks Sparingly, Reversing CourseThe Social Security Administration has backed off from plans to eliminate paper checks. However, it will only send checks in the mail as a matter of last resort.
-
Ask the Editor — Tax Questions on Four New Tax DeductionsAsk the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on four new tax deductions in the "One Big Beautiful Bill."
-
How Divorced Retirees Can Maximize Their Social Security Benefits: A Case StudySusan discovered several years after she filed for Social Security that she is eligible to receive benefits based on her ex-spouse's earnings record. This case study explains how her new benefits are calculated and what her steps are to claim some of the money she missed.
-
From Piggy Banks to Portfolios: A Financial Planner's Guide to Talking to Your Kids About Money at Every AgeFrom toddlers to young adults, all kids can benefit from open conversations with their parents about spending and saving. Here's what to talk about — and when.
-
I'm an Investment Pro: Here's How Alternatives Could Inject Stability and Growth Into Your PortfolioAlternative investments can often avoid the impact of volatility, counterbalancing the ups and downs of stocks and bonds during times of market stress.
-
Dow Bleeds Red Due to Big Blue: Stock Market TodaySix of the official GICS sectors were in the green, led by communications services, technology and energy stocks.
-
July Fed Meeting: Live Updates and CommentaryThe July Fed meeting could be a lively economic event, with Wall Street keyed into what Fed Chair Powell has to say about interest rates and President Trump.
-
A Contrarian Approach Pays Off for This Small-Cap FundSmall-cap stocks have been hit hard by tariff worries, but this T. Rowe Price fund has outperformed thanks to its manager's against-the-tide approach.
-
A Financial Planner's Guide to Unlocking the Power of a 529 Plan529 plans are still the gold standard for saving for college, especially for affluent families, though they are most effective when combined with other financial tools for a comprehensive strategy.
-
An Investment Strategist Takes a Practical Look at Alternative InvestmentsAlternatives can play an important role in a portfolio by offering different exposures and goals, but investors should carefully consider their complexity, costs, taxes and liquidity. Here's an alts primer.
