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home depot wall replacement

Home Depot Survives Earnings

consumer discretionary news Nov 14, 2023

Markets are embracing a sales slowdown as guidance improves


Home Depot stock rose today despite their earnings call effectively confirming that the company is headed for their first decline in sales since 2009. Why is that good news? 


Basically, the market expected a lot worse and Home Depot beat expectations. Sales fell 3% YoY, netting Home Depot $37.71 billion in revenue when the markets expected less. Home Depot also managed to keep margin growth alive, beating expectations with a solid $3.81 EPS. The revenue declines are primarily being driven by big-ticket items, so this suggests that Home Depot customers are merely changing their habits to keep up with inflation rather than demand collapsing entirely. 


More importantly, Home Depot tightened their yearly guidance to reflect a 3%-4% drop in revenue for the full year when it previously looked like it could get as bad as 5%. With the housing market on fire right now, more people are staying in older homes longer than they would like to and are therefore investing more in smaller projects to improve the conditions of older houses. At the same time, customers are also not investing in more expensive projects associated with moving into a new home. In short, Home Depot has managed to stop the bleeding here and keep hope alive for better growth next year as inflation and the housing market could start to improve. 


At the end of the day, investors are expecting a much sharper slowdown than this. Retail stocks in Q3 had a decent chance to be the first big warning sign that the Fed's slowdown is moving fast enough to blow up into an actual recession. With Home Depot beating limited expectations, things are looking a little rosier ahead of more retail stocks reporting. For now, Home Depot stock rose 3% at open thanks to this and a great CPI report.