Home Depot & Walmart: Earnings Preview

This week, investors shall keep an eye on earnings from the two behemoths of the retail trade sector – Home Depot and Walmart. Home Depot sells tools, construction products, appliances and services while Walmart operates a chain of hypermarkets, discount department stores and grocery stores. By market capitalization in  the global retail sector, both were ranked 3rd and 2nd respectively, right after Amazon.

US Retail Sales. Source: Trading Economics

As of September 2023, US retail sales increased 3.75% over the same month in the previous year, still below the average figure 4.83% from 1993 until 2023. Nevertheless, the data recorded a monthly upward increase of 0.7%, beating market forecast (0.3%). This may point to still-robust consumer spending (but could eventually be hampered by higher-for-longer interest rates). Categories which saw an increase in sales are miscellaneous store retailers (3%), non-store retailers (1.1%), motor vehicles and parts dealers (1%), gasoline stations (0.9%), food services and drinking places (0.9%), health and personal care stores (0.8%), food and beverage stores (0.4%) and general merchandise stores (0.4%). On the contrary, categories which saw a decline in sales are furniture stores, electronics and appliances, clothing stores, sporting goods, hobby, musical instrument and bookstores (-0.8%), as well as building material and garden equipment (-0.2%).

Home Depot

The company shall release its Q3 2023 earnings result on 14th November (Tuesday), before market open.

In Q2 2023, Home Depot reported revenue at $42.92B, better than market expectation ($42.19B) for the first time in three quarters. However, the reported figure was slightly down nearly -2% from the same period last year following continued pressure in big-ticket, discretionary categories. Other items underperformed compared to those in Q2 2022, such as operating income ($6.59B, down -8.6% (y/y)), net profit ($4.66B, down -9.9% (y/y)) and diluted EPS ($4.65, down -7.9% (y/y)).

Home Depot: Revenues & Earnings (After Deduction of Tax and Expenses). Source: Tipranks

Other headwinds include normalization of demand for DIY projects, weakening housing market, rising prices, consumer spending shift etc. The management also pointed out that total customer transactions fell by nearly 2% compared to the same period last year. Following a combination of the aforementioned factors, the management reiterated its muted forecast for FY2023, with sales predicted to decline between 2%-5% compared with the year-ago period., while EPS is expected to be down 7%-13% from the prior year period.

Home Depot: Reported Sales versus Analyst Forecast. Source: CNN Business

Consensus estimates for sales revenue of Home Depot in the coming announcement stood at $37.6B, down -12.4% from the previous quarter, and down -3.3% from the same period last year.

Home Depot: Reported EPS versus Analyst Forecast. Source: CNN Business

On the other hand, EPS is expected to hit $3.77, down nearly -19% from the previous quarter. In Q3 2022, it was $4.24.

Technical Analysis:

The #HomeDepot share price remains traded below resistance $301 (FR 23.6% extended from the high in Dec 2021 to the low in June 2022) and 100-week SMA, after forming a double top pattern when the asset failed to break the FR 50.0% at $342. Nearest support is seen at $264.10 (the low seen in June 2022), followed by the Feb 2021 lows at $246.38.

Walmart

The company is expected to report its earnings for Q3 2023 on 16th November (Thursday), before the opening bell.

Walmart: Revenues & Earnings (After Deduction of Tax and Expenses). Source: Tipranks

In contrast to Home Depot, the key financial metrics of Walmart were solid in the previous quarter. Sales revenue were up 5.7% (y/y) to $161.6B.

The company continued to see growth in eCommerce locally (+24% (y/y)) and internationally (+26% (y/y), mainly led by China, Walmex and Flipkart) – the former was driven by grocery and Health & Wellness (despite a modest decline in general merchandise sales), whereas the latter was boosted by strength in store-fulfilled. In addition, a division of Walmart – Sam’s Club (paid membership based warehouse, which sells groceries and household items in bulk amounts) reported net sales slightly down -0.3% (y/y) to $21.8B. Nonetheless, the segment reported solid growth in membership count and income following continued strength in member growth and renewals.

Walmart: Net Sales and Operating Income. Source: Walmart Earnings Report

Operating income was up +6.7% (y/y) to $7.3B. By business segments, main contribution came from Walmart US ($6.11B, up +7.6% (y/y), while Walmart International saw a leap of over 14% (y/y) in operating income at $1.19B. Gains were slightly offset by minor losses reported in Corporate & Support.

In general, Walmart’s continuous innovation and progress in e-commerce is apparent to all. Some of the milestones achieved include Walmart GoLocal, Walmart Luminate, Walmart Connect, Walmart+, Spark Delivery, Marketplace and Walmart Fulfillment Services. In addition, the company has various partnerships, investments and buyouts which keep the company at its competitive edge.

Walmart: Reported Sales versus Analyst Forecast. Source: CNN Business

Nevertheless, consensus estimates for sales revenue of Walmart remain flat at $156.8B, in contrast with the management guidance which expected a growth of 3%.

Walmart: Reported EPS versus Analyst Forecast. Source: CNN Business

EPS is expected to hit $1.48, down over -19% from the previous quarter. In Q3 2022, reported EPS was $1.50.

Technical Analysis: 

The #Walmart share price has traded in an uptrend since gaining support in May 2022. ATH is seen at $166.60, before the asset closed the week at $166.05, above support $160.75. Based on the projection of Fibonacci Expansion, the next resistance to focus on is $170, followed by $181.40. On the other hand, a retrace below the said support may indicate technical correction, to test the second higher low (green zone) at $151.60.

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Larince Zhang

Market Analyst

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