Wednesday, August 19, 2020

Home Depot Stock Slides Despite Record Q2 Sales

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News shaping
the markets today

     

What’s happening: Shares of Home Depot Inc. declined on Tuesday despite the retailer reporting stronger-than-expected results for its second quarter.

What happened: With coronavirus-led lockdowns and rising house prices resulting in customers spending more on home repair projects, Home Depot reported its strongest growth in quarterly same-store sales in over two decades.

Despite exceeding market estimates, the Atlanta-based retailer’s shares lost favour with investors, after rising in pre-market trading on Tuesday.

How were the results: The home improvement chain reported a sharp rise in both sales and earnings for the second quarter.

  • Sales surged to $38.05 billion, from $30.84 billion in the same quarter last year, beating the consensus estimate of $34.53 billion.
  • Same-store sales grew 23.4%, also surpassing the consensus view of 12.2%.
  • Net income grew to $4.33 billion, or $4.02 per share, from $3.48 billion, or $3.17 per share, in the year-ago quarter, ahead of market expectations of $3.68 per share.

Why it matters: Amid shelter-in-place orders, people spent more time on DIY (do-it-yourself) projects at home including gardening and painting, which sent Home Depot's total sales to a record high in the second quarter. US same-store sales jumped 25% last quarter, handsomely beating estimates.

The retailer’s quarterly results were also boosted by mortgage rates falling to a record low, driving demand for new houses. US home construction starts also rose more than expected in July, according to a report released on Tuesday.

Despite the robust sales, Home Depot witnessed a rise in costs, as the company had to adopt various measures to safeguard its employees and serve customers amid the covid-19 crisis. The retailer’s selling, general and administrative costs surged 26% in the second quarter.

Home Depot did not provide any operating forecast for 2020, citing uncertainty related to the pandemic. Management expressed concern around the deterioration in the economy in view of the resurgence of infections in the country.

How shares responded: Shares of Home Depot slipped 1.1% to close at $285.00 on Tuesday, after rising as much as 3% in pre-market trading. The stock has gained more than 16% over the past three months.

What to watch: The latest quarter indicated that Home Depot is able to adapt to the changing demand of consumers and generate strong profits even during a crisis. Investors expect the retailer to maintain its healthy growth profile despite the business entering a high-risk period with rising cases in the country.

The Markets Today

     

The British pound will be in focus today, ahead of a basket of economic reports scheduled for the day.

Context: The British pound touched an eight-month high versus the US dollar on Tuesday, following continued weakness in the greenback and the resumption of Brexit talks.

Details: Britain and the European Union restarted talks over Brexit yesterday. Britain's negotiator for the deal, David Frost, said that an agreement on the future relationship between the two regions is likely to be inked by September.

However, the UK and EU leaders remain divided on major issues, including fisheries and fair competition rules.

Meanwhile, the US dollar continued to remain soft, hitting a 27-month low amid uncertainty over the new covid-19 relief package. The ICE US Dollar Index, which measures the currency’s performance against six major rivals, declined 0.6% to 92.29 on Tuesday.

During the previous session, the GBP/USD climbed to $1.327 for the first time since January.

What to watch: Investors await reports on UK’s inflation rate, retail price inflation and producer prices. The annual inflation rate, which rose to 0.6% in June, is expected to remain unchanged in July. Annual retail price inflation is estimated to rise to 1.2% in July. Analysts project producer prices to rise 0.3% in July.

Markets will continue to keep a close eye on the covid-19 figures, with total cases in the world exceeding 22 million.

Investors seem positive this morning and the British pound is likely to build on yesterday’s gains. The GBP/USD rose by 0.05% to $1.3241 in the Asian session.

Other Markets: US indices trading closed mixed on Tuesday, with the S&P 500 and Nasdaq 100 up by 0.23% and 0.73%, respectively, while the Dow Jones index fell 0.24%.

Support & Resistances
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Futures at 0400 (GMT)

What else to watch today

     

Indonesia’s interest rate decision, Eurozone’s current account and inflation rate, South Africa’s inflation rate, Italy’s current account, Canada’s inflation rate and wholesale sales, Argentina’s leading economic index as well as the US MBA mortgage applications, EIA’s crude oil stocks and FOMC minutes.