Home Depot May Be Setting Itself Up To Nail Future Estimates: Analyst Says Home Improvement Retailer 'Knows How To Manage Expectations'

Home Depot Inc HD beat earnings estimates for the first time in three quarters Tuesday morning, but sales slipped on a year-over-year basis as customers held off on big-ticket purchases.

What Happened: Home Depot said second-quarter revenue decreased 2% year-over-year to $42.92 billion, which beat the consensus estimate of $42.25 billion. The home improvement retailer also beat earnings expectations, turning in earnings per share of $4.65 versus estimates of $4.46.

Last quarter, Home Depot guided for a comparable sales decline between 2% and 5% for full-year 2023, noting that it was seeing "more broad-based pressure across the business" than in previous quarters.

The company reaffirmed its guidance Tuesday morning, noting that it saw "continued pressure in certain big-ticket, discretionary categories." If Home Depot ends up turning in declining sales numbers for the year, it would mark the first annual sales decline since 2009. 

In a CNBC interview following Home Depot's quarterly results, CFO Richard McPhail reiterated the caution the company is seeing on "larger-ticket" items. Some of the wariness is likely being caused by higher interest rates, he said. 

However, the home improvement retailer's typical customer is in good financial standing and the company doesn't expect inflation to continue to be a headwind in the second half of the year as prices have settled. 

Why It Matters: Oppenheimer analyst Brian Nagel noted that the company is "muddling through" 2023, with its eyes set on a recovery in the years ahead.

The expectation is that home improvement trends will "solidify and begin to improve again" in 2024 and 2025, the analyst said Tuesday on CNBC's "Squawk Box."

He also believes the company could have probably raised guidance, but is leaving room for upside surprise given the uncertainties that still exist around weather and the macro environment. 

"Home Depot knows how to manage expectations well ... the whole idea is to get through 2023 relatively unscathed and then we're playing for 2024 when it's our expectation and those of others, you should see this resumption of expansion within the home improvement space," Nagel said. 

See Also: Can Home Depot Survive The Current Hosing Market Headwinds? Analyst Discusses Future

HD Price Action: Home Depot shares are essentially flat over the last year. The stock was up 0.42% at $331.32 at the time of writing, according to Benzinga Pro.

Photo: Mike Mozart from Flickr.