HD Earnings Preview: Subdued Q3 expected but outlook should improve
3min read Home Depot (HD) is set to report its Q3 earnings on November 12 before the market opens, with analysts expecting EPS of $3.65 and revenue of $39.29 billion, according to FactSet consensus. Key metrics to watch will include comparable sales, anticipated to remain soft, with the current guidance range suggesting a year-over-year decline of 3-4%. Inventory levels will also be critical, as the company has been managing supply chain challenges while also preparing for expected demand shifts driven by recent rate cuts and storm recovery efforts.
Analyst expect citing ongoing demand challenges from high-interest rates and weaker consumer spending to weigh on home improvement. However, HD’s outlook for 2025 could be bright, pointing to several catalysts: the Federal Reserve's recent rate cut, which may spur consumer spending on home improvement projects, and increased sales stemming from hurricane recovery. Historical data shows that HD has benefited from a comparable sales boost after major hurricanes, so the recent storms could provide tailwinds into next year.
Loop Capital recently upgraded HD to a “Buy” with a price target increase from $360 to $460, optimistic about a rebound from storm-driven demand and the easing of supply chain pressures following the port strike resolution. Analysts at Loop anticipate incremental growth from HD’s SRS Distribution acquisition, particularly in the Pro segment, which they expect will drive HD’s long-term growth rate higher than Lowe's (LOW). The Pro business expansion, focused on more complex projects, positions HD to capture additional market share over time.
RBC Capital expects slight beats on comp sales and EPS, possibly pushing HD toward the high end of its guidance range. However, RBC also cautions that visibility into an overall category recovery remains low, noting that HD could be in a prolonged low-growth environment if demand takes longer to normalize. Meanwhile, Telsey Advisory Group raised its price target for HD from $360 to $455, anticipating strong execution on capitalizing market catalysts and leveraging its digital strength. Telsey projects HD's Pro segment expansion will drive revenue, particularly with the integration of SRS Distribution.
Survey data from UBS indicates stabilizing DIY demand, which could hint at a base forming in consumer sentiment around home improvement spending. Over half of respondents intend to undertake home improvement projects in the next three months, suggesting a steady but cautious consumer outlook. This trend aligns with HD's focus on professional contractors and larger-scale projects, areas where it has seen steady growth due to its Pro-focused initiatives.
Mizuho recently reiterated its “Outperform” rating on HD following a virtual investor meeting, expressing confidence in HD's positioning to benefit from rate cuts and storm-related rebuilding activity. Mizuho raised its price target from $400 to $435, expecting low single-digit comp sales growth to gradually materialize as consumer financing rates become more favorable. They view HD’s potential to reach $200 billion in annual revenue as achievable, with the current environment paving the way for earnings revisions in the near term.
Home Depot reported a challenging Q2, with comparable sales declining 3.3%, falling short of expectations as demand for home improvement products remains weak. The company cited persistently high interest rates, a sluggish housing market, and macroeconomic uncertainties as factors holding back big-ticket purchases, and as a result, HD revised its FY25 revenue and comparable sales guidance downward. Foot traffic and average ticket sales both fell, and the company projects FY25 comps to drop 3-4%, down from its earlier forecast of about a 1% decline. Although HD surpassed Q2 EPS estimates, it lowered its FY25 EPS guidance due to amortization expenses from its $18.25 billion acquisition of SRS Distribution.
Despite these headwinds, HD raised its FY25 revenue outlook to account for contributions from the SRS Distribution acquisition, expecting 2.5-3.5% revenue growth versus its previous 1% estimate. Strategically, this acquisition strengthens HD's Pro business and enhances its position against rival Lowe's (LOW), which has also been expanding its Pro offerings. HD’s soft results have tempered expectations for Lowe's Q2 report on August 20, but both stocks are showing resilience amid hopes that the Federal Reserve will eventually cut rates, which could revive demand for home improvement projects. While HD faces short-term struggles, its long-term growth prospects remain favorable, driven by healthy underlying demand and expansion in the Pro segment through SRS Distribution.
Overall, HD enters Q3 with tempered near-term expectations but an optimistic long-term outlook. As the rate cut cycle continues and demand normalizes, HD could be well-positioned to capitalize on a potential rebound in consumer spending and Pro segment growth. Investors will be watching for any positive signs of demand recovery or strategic progress in the Pro business, particularly in relation to the recent SRS Distribution acquisition, as indicators of HD’s potential to outperform in the coming quarters.