Retail Earnings Loom: A Closer Look

Sheraz Mian
7 min read

In This Article:

Home Depot HD is on track to kick off the Q3 earnings season for the conventional brick-and-mortar retailers this week, with the company on deck to report results before the market’s open on Tuesday, November 12th. Lowe’s LOW comes out a week later on Tuesday, November 19th.

Lowe’s shares have outperformed Home Depot this year (+21.6% vs. +16.8%), though both have lagged the Zacks Construction sector (+26.4%) as well as the S&P 500 index (+25.7%), as the chart below shows.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The operating environment for Home Depot and Lowe’s remains difficult, as the interest rate backdrop continues to be unfavorable despite the U.S. Fed’s easing policy. The strength in treasury yields in recent weeks likely reflected the bond market’s early read on the U.S. elections and the incoming administration’s pro-growth policy posture.

With the Fed on track to continue easing, as reconfirmed by the Fed Chair’s press conference, investors would expect treasury yields to eventually come down. That said, the yield curve is unlikely to shift down in parallel, with the shorter end of the curve reflecting the central bank’s easing policy and the longer end proving to be somewhat ‘sticky’ to reflect expectations of a more robust growth environment.

The read-through for Home Depot and Lowe’s of this interest rate discussion is that mortgage rates may not come down as much or as fast as would typically be expected in a Fed easing cycle. What this means is that trends in the existing home sales space are unlikely to meaningfully improve over the near term, though one would expect the medium- to long-term outlook on the existing home sales front to be positive on economic and demographic grounds.

We don’t expect any major surprises in Home Depot’s Q3 results, though the numbers may have benefited on the margin from the active storm activity in the U.S. Southeast. The expectation is for Home Depot’s Q3 earnings to be down -5% from the year-earlier level on +4.1% higher revenues. Estimates for the period are down from three months back, reflecting management’s guidance following the August 13th quarterly report, but they have modestly ticked up in recent days.

With respect to the Retail sector’s 2024 Q3 earnings season scorecard, we now have results from 23 of the 34 retailers in the S&P 500 index. Regular readers know that Zacks has a dedicated stand-alone economic sector for the retail space, which is unlike the placement of the space in the Consumer Staples and Consumer Discretionary sectors in the Standard & Poor’s standard industry classification.

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