What Home Depot Q4 Earnings Mean For Lowe's, The Broader Economy

Home Depot Inc HD shares are sliding on weak quarterly results, and one analyst sees the report as a sign that consumer spending is softening due to inflation.

Home Depot's Q4 Results: Home Depot reported fourth-quarter revenue of $35.83 billion, which missed estimates of $35.97 billion. The home improvement retailer turned in quarterly earnings of $3.30 per share, which came in slightly above estimates of $3.28 per share.

Fourth-quarter revenue was up just 0.3% on a year-over-year basis, below analyst expectations. Home Depot warned that it expects 2023 revenue growth and comparable sales growth to be approximately flat compared to 2022.

Related Link: Home Depot Posts Mixed Q4 Earnings, Hikes Dividend By 10%, Forecasts Decline In FY23 EPS

What It Means: Telsey Advisory Group analyst Joseph Feldman reiterated an Outperform rating on Home Depot with a $360 price target following the company's quarterly results. While the stock may be positioned to outperform, the economy appears to be softening, the analyst said. 

Earnings were largely in line with expectations, but margins are starting to come under pressure, reflecting a tougher consumer spending environment and softer home improvement demand, Feldman said, adding the weaker trends are being driven by declining home sales and slowing remodeling activity.

"Ticket increased 5.8%, pointing to inflation and spending on big ticket categories and projects, while transactions declined 6.0% vs. a decline of 3.4% last year and an increase of 12.8% in 4Q20," the Telsey analyst said, highlighting the declining transactions trend.

Feldman expects the overall softness to leak into Lowe's Companies Inc's LOW quarterly results, which are due next week. The analyst anticipates continued outperformance, adding that a cautious approach is likely warranted given the uncertain environment. 

See Also: Lowe's Stock Slides Following Home Depot's Quarterly Results: What's Going On?

The broader readthrough on the economy as a whole is that consumer spending appears to be slowing. Home Depot ended the quarter with inventory up 13%, which looks to be partly due to inflation, the analyst said.

HD Price Action: Home Depot has a 52-week high of $347.25 and a 52-week low of $264.51.

The stock was down 5.07% at $301.87 at the time of writing, according to Benzinga Pro.

Photo: courtesy of Home Depot.