Last week, the retail sector was whacked in the face by some not-so-good earnings reports from the big department stores. While the results may have been better than depressed expectations, comparable sales were still broadly negative across the board. Margins were under pressure. And store-closing remained a theme.
But despite all that noise, one company that has withstood the retail wreckage is Home Depot Inc (NYSE:HD).
Why?
Well, the obvious reasons. The home improvement retailer sells the type of stuff that Amazon.com, Inc. (NASDAQ:AMZN) can’t easily sell online. It also provides the sort of in-store and at-home expert services that are difficult for an e-commerce only retailer to replicate.
All in all, HD stock has been a winner despite the Amazonification of retail.
This winner is announcing quarterly results before the bell on Tuesday. Will they be good?
Likely great. Here’s why.
Home Depot Likely Had Another Great Quarter
Home Depot has rattled off a string of double-beat quarters recently. Last quarter, HD beat on both the top and bottom, while reporting that comps rose 5.5%. The quarter before that, the company also beat on the top and bottom, while reporting a 5.8% rise in comps.
Guess what happened the quarter before that? Beat on top and bottom with a near 6% rise in comps.
The HD growth narrative has been about as stable as any growth narrative in the market. And it likely continued this quarter.
Advance monthly sales numbers show that the home improvement space remains on fire. Building material stores saw sales rise 8.4% in April, 9.0% in May and 5.1% in June. Overall, sales from April through June for building material stores rose 7.2% year-over-year.
That makes building material stores the fastest growing segment in retail outside of non-store retailers (the e-commerce only segment). That is pretty impressive, considering the next closest segment is gas stations with a 5.5% rise.
Meanwhile, HomeAdvisor said in a recent report that Home Depot reported strong results last quarter driven in large part by robust PRO service growth. Jefferies analyst Daniel Binder said that vendor reports suggest Home Depot had another strong quarter.
That is pretty good data, and one thing I’d like to emphasize is that search interest trends have been really strong for HD.
Since April, search interest related to Home Depot has grown about 8.5% year-over-year, versus a 7.4% gain in the first 3 months of the year. That means more people are looking up HD. And why do people look it up? To either shop online or locate the nearest store.
All in all, it looks like Home Depot had another great quarter. Surveys, vendor reports, government data, and search interest trends all provide bullish reads into Home Depot’s results. The stable growth narrative likely continued, and that means a beat on both the top and bottom.
Bottom Line on HD Stock
The opportunity with Home Depot stock is that it took a major step back when Amazon announced a partnership with Sears Holdings Corp (NASDAQ:SHLD) to sell Alexa-integrated Kenmore appliances through Amazon.com. Although HD stock has recovered its losses from that sharp drop-off, that means the stock is down about 2% over the past 3 months versus a 3% gain for the S&P 500 Index.
In other words, Home Depot stock has actually under-performed the S&P 500 over the past 3 months.
That doesn’t normally happen. Over the past 10 years, HD stock is up more than 300%, while the S&P 500 is up just 70%.
This dynamic (recent under-performance but long-term over-performance) implies that HD stock could pop significantly higher on better than expected Q2 numbers. Such a pop could provide runway for continued market-beating gains.
Overall, I like the set-up into the report, and also like HD stock as a long-term holding.
As of this writing, Luke Lango was long HD.
