April 21, 2024


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Home Depot Q3 Earnings Preview: Will Remarkable Sales Growth Continue?

Home Depot (NYSE:HD) has been a beneficiary of the coronavirus pandemic. Folks have taken an increasing interest in home improvement projects since they started spending a lot more time at home. 

Surprisingly, that momentum has sustained for Home Depot, even as economies are reopening and people are resuming some pre-pandemic activities. The home improvement retailer will report fiscal 2021 third-quarter earnings on Nov. 16, and shareholders will be hoping for more of the same.

A person with a drill doing home repairs.

Image source: Getty Images.

Rising home values and delayed projects fuel growth for Home Depot 

Sales in its second quarter increased by 8.1% from the same time last year. The increase propelled revenue over $41 billion, the first time in the company’s history that sales exceeded $40 billion in a quarter. CEO Craig Menear discussed what’s driving continued customer spending despite reopening economies in the company’s second-quarter conference call:

And while the consumer is returning to pre-pandemic activities, we continue to see them engaged in home improvement projects. We also see customers more comfortable taking on larger projects as evidenced by the continued strength with our Pro customer, which outpaced the DIY customer for the second quarter in a row.

There appears to be pent-up demand from consumers who delayed larger home improvement projects during the early stages of the pandemic. Folks were hesitant to allow professionals inside their homes. Now that vaccines against COVID-19 are widely available, and the threat of COVID-19 is becoming less severe as a result, people are more interested in completing larger home improvement projects that were put on hold. 

One of the leading things that gets people interested in spending money on their homes is increasing home values. If you notice your home value increasing, you’re more likely to view spending on your home as an investment rather than an expense.

And home values have been soaring since the pandemic, with no signs of letting up. According to the Federal Reserve Bank of St. Louis, home prices increased by 20% in August from the same month last year. The rate of growth has been accelerating nearly every month since July 2020. The trend could fuel continued spending on home improvement projects where Home Depot will once again benefit.

Home Depot’s stock is on a tear in 2021 

Analysts on Wall Street expect Home Depot to report revenue of $34.5 billion in Q3 and earnings per share (EPS) of $3.34. If the company hits the EPS estimates, it would be a 5% increase from the same quarter last year. That would be an impressive feat considering the myriad supply chain disruptions and inflationary pressure.

The market has handsomely rewarded Home Depot for its excellent performance in 2021. The stock is up 39% year to date. Investors looking to get on board and acquire shares of the home improvement retailer cannot be faulted. However, it may be prudent to wait for third-quarter earnings to come out before you start buying. That way you have the latest information to make your decision.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.