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Earnings: Are Consumers Spending at Home Depot?

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May 16, 2016
hd-earnings-report

If you’ve watched any of those popular home-improvement or flip-this-house TV programs, you might be thinking the do-it-yourself industry is one of those few retail segments that is ringing up higher sales. You might be right. When Home Depot (HD) reports its Q1 results before the bell Tuesday, the numbers will be on the saw table for all to see.

Home Depot reckons two-thirds of U.S. homes are 30 years old or more, according to the Wall Street Journal. That means lots of homeowners are putting big bucks into updating and refurbishing their abodes. And many of them, according to the last few years of earnings results, are going to HD and its biggest rival Lowe’s (LOW) for the tools and materials to do so.

During its last quarterly conference call, HD said sales of big-ticket items like appliances and water heaters have helped topline sales. The number of receipts totaling $900 or more spiked 12% on a year-over-year basis in the last quarter, HD said. Has that happened again in Q1?

Many analysts reporting to Thomson Reuters are looking for a per-share profit of $1.35, up 16.3% over the year-ago period, driven by revenues that are forecast to rise 6.8% to $22.31 billion. HD’s outperformance streak over the last five years has been strong; it has only missed Wall Street’s expectations twice over that time.

Short-term option traders have priced in a potential 3% share price move in either direction around the earnings release, according to the TD Ameritrade thinkorswim® platform's Market Maker Move indicator.

Ahead of earnings, many options traders were active at the 140-strike calls on the weeklies and the 135- and 140-strike calls on the monthlies. Many options traders were active in 120-strike monthly puts. The implied volatility is at the 38th percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price and over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

hd-earnings-report

FIGURE 1: HOME DEPOT POWERS UP.

Since bottoming this year in early February, HD shares have catapulted higher by more than 19%. Shares reached an all-time high last week at $137.82. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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