Earnings of Home Depot Beat Estimates as Company Announces $15 Billion Buyback of Stock

Home Depot Inc.'s stock experienced fluctuations between gains and losses in early Tuesday trading following the release of the home-improvement retailer's second-quarter earnings report. Despite a decline in earnings, the results surpassed estimates, and the company affirmed its guidance while announcing a significant $15 billion share buyback initiative.

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As of the latest data, the stock (HD, 0.13%) exhibited a 0.9% increase, with most analysts providing an optimistic assessment of the reported figures.

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"Given the Federal Reserve's likely approach to conclude their rate hike cycle, a housing market that maintains stronger pricing than anticipated due to factors like limited mobility and the company's dominant strategic position in a favorable retail sector, we continue to recommend Home Depot shares as a buy," stated analysts from Truist.

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In detail, the Atlanta-based company posted a net income of $4.659 billion, corresponding to $4.65 per share, for the quarter, a decrease from $5.173 billion or $5.05 per share in the corresponding period of the previous year. Sales experienced a reduction to $42.916 billion from $43.792 billion a year ago.

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These figures exceeded the FactSet consensus, which had estimated an EPS of $4.45 and sales of $42.193 billion.

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A noteworthy achievement was the outperformance in same-store sales, which fell by 2%, surpassing the consensus that had anticipated a 4.5% decline.

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CEO Ted Decker commented, "While smaller project-associated categories exhibited strength, we continued to face challenges in certain discretionary, high-ticket categories. Despite this, we hold a very positive outlook for the medium-to-long term prospects of the home improvement sector and our potential to increase market share in this expansive and fragmented market."

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Regarding the specifics of the report, Home Depot's big-ticket comparable transactions experienced a 5.5% decline in comparison to the second quarter of the prior year, as shared by Decker during the earnings call. This category covers products like patios and appliances.

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Nonetheless, the CEO expressed satisfaction with the consumer engagement observed in the realm of home improvement, particularly concerning smaller projects.

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The average transaction value for the quarter recorded a marginal increase of 0.1%, reaching $90.07. Meanwhile, sales per retail square foot witnessed a decrease of 2.3%, amounting to $684.65. Customer transactions dropped by 1.8% to 459.1 million in the same period.

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The company reasserted its full-year guidance, which projects a 2% decline in sales, a 5% decrease in same-store sales, and an EPS decline ranging from 7% to 13%.

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In addition to the guidance confirmation, Home Depot introduced a significant $15 billion share buyback program.

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Analysts from Jefferies commended the reported figures, highlighting the performance of the company's Pro segment, which appeared to outperform its DIY counterpart, driving the positive outcome.

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In the words of Jefferies analysts, "Investors may have been anticipating a minor deviation in comparable sales, making the nearly 200 basis points above Street estimates a positive surprise."

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Wells Fargo, also endorsing a buy rating for the stock, welcomed the buyback announcement as an additional favorable factor.

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"While it's prudent not to anticipate an increase in this context, it's worth noting that a steeper deceleration in the second half (reflecting around -4% comps) is now inferred, casting uncertainty on the timing of a category trough," remarked analysts from Wells Fargo.

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The stock has witnessed a 4.5% gain year-to-date, in contrast to the S&P 500's 17% increase and the 6% rise in the Dow Jones Industrial Average, of which Home Depot is a constituent member.

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