Earnings Preview: Home Depot

AP News
Posted: Nov 16, 2009 2:12 PM

Home Depot Inc., the largest U.S. home-improvement retailer, reports earnings for the fiscal third quarter on Tuesday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Home Depot and other home-improvement retailers have faced sales declines as consumers hold back on do-it-yourself projects amid worry over jobs and home values. Although the U.S. housing market is stabilizing, after a nearly three-year decline, home prices remain far below their peak.

On Monday Home Depot's smaller rival Lowe's Cos. reported third-quarter profit fell 30 percent as sales declined 3 percent. Still, the company said some of the hardest-hit home markets are stabilizing and said it expects this year's fourth quarter to be stronger than last year's.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters, on average, predict a profit of 36 cents per share on revenue of $16.27 billion.

ANALYST TAKE: Jefferies & Co. analyst Daniel Binder said in a note to investors that sales in stores open at least one year, a key measure of a retailer's financial health since it excludes sales from new stores, likely fell 8 percent during the quarter.

"Signs of improvement in Home Depot's business and housing overall keep our rating favorable at a Buy," he wrote. Still, he said one caveat is the uncertain amount of time a recovery in consumer confidence will take. "Homeowners may hesitate to reinvest in the home for some time as values remain substantially below peak levels," he wrote.

Deutsche Bank analyst Mike Baker said in a note to investors last week that several indicators he watches show housing trends have likely bottomed, but have yet to improve significantly.

"Supplier indications are for the most part stable versus the previous quarter, while retail sales data from the industry are tracking worse than the second quarter," he wrote. "On the other hand, increases in home sales and smaller declines in home prices, if sustainable," point to a rebound in sales at stores open at least one year by early next year, he wrote.

WHATS AHEAD: Analysts will be looking for any indication of how holiday sales are trending and how promotional the season is shaping up to be.

STOCK PERFORMANCE: Shares fell 3 percent during the quarter beginning Aug. 3