Home Depot’s (HD) Playbook for a Slowing Housing Market

**SPEAKER_1** (0:01)
Our watchlist panel is ready. Amanda O'Neill, Retail Director, S&P Global Ratings, and John Blank, Chief Equity Strategist and Economist, Zach's Investment Research. I'm so glad you are with us. Home Depot is such a parameter. It really gives us a look into the economy, how people are spending.
Amanda, why don't you start with us and tell us a little bit about your thoughts on the Home Depot report?

**Amanda O'Neill** (0:27)
Thank you for having me, Nicole. Yeah, the Home Depot report was surprising in that comparable same-store sales was up 1.7 percent. That beat our expectations, and it looks like the company is on track to hit our low single-digit forecast for the year.
The growth is really coming from higher prices. We saw larger contribution from higher ticket prices. So that shows that the consumer is willing to spend and is transacting, but what we didn't see is still the consumer's willingness to commit to those larger home projects. So that is still waiting to inflate.

**SPEAKER_1** (1:07)
So a little nervousness when it comes to the big spend here, John, but at the same time, you did note and talking about the fact that they've had a trend four times over the last four quarters, the company has top consensus revenue estimates. To what do you attribute that great step?

**John Blank** (1:27)
You know, I think we've had a strong consumer out there, Nicole, not particularly in the last two months with the gas prices, but outside of gas prices and home furnishings, the smaller ticket items for a place like Home Depot are very supportive of the idea that there is an active consumer, but it's a cautious one, a small ticket one. I think that's the basic message I would put out there.

**SPEAKER_1** (1:52)
Understood. I mean, do you think this is a precursor, John, to what we might see for Lowe's? How do you think they're similar or different as retailers?

**John Blank** (2:01)
As retailers, I think Lowe's a little faster moving at Home Depot, but the stock doesn't reflect that, so I think we're going to get a tale of two stories here where the overpriced Home Depot is not going to move on, a decent earnings report, and the story of Lowe's is going to be similar in the terms of supporting the small-ticket consumer story, but the stock is definitely a cheaper stock and can move a lot more. Again, you got to keep your mind here that the companies and stocks and the story of the consumer are three different things in this context.

**SPEAKER_1** (2:34)
We think about general consumer spending, Amanda, and we got in a sentiment number recently that was a little weaker than expected, and the concerns about rising gasoline prices. What do you think may change the story overall?

**Amanda O'Neill** (2:50)
Yeah, I agree with everything that was said. I think we're seeing the consumer spend in specific pockets and discretionary. I think Home Depot shows that remodeling and small house projects are something they're willing to spend on. I think the key indicator we're more concerned about here is going to be unemployment. Because I think if unemployment truly does rise, then that is something that will cause the consumer and potentially higher income consumers to start to pull back, and that would just extrapolate the concerns for the consumer regarding inflation that they've been dealing with for multiple years now.

**SPEAKER_1** (3:25)
I think about the Express Delivery Program, the nationwide rollout. The company did beat the street and they actually gave a decent outlook as well. But they're ready to have this nationwide rollout of Express Delivery Program. And we think about sometimes the costs in the beginning, does it become lucrative? What do you think, John? Do you think this is a good idea for a consumer convenience? And even the pros are when he had a conversation with Likefolio, Andy Swan told us that Home Depot still remains the preferred place overlows for the professional builders and construction people. So how many times have you been to a Home Depot and there's a guy in there looking for widget X. Maybe now we can have it delivered. Will that help a lot?

**John Blank** (4:12)
Absolutely. I mean, they also bought this company, SKS in 2024, which has $1,200 for their own on top of Home Depot's $2,500. So what they're doing with digital connectivity has to be inclusive to that group, which is part of this downstream pro effort. So connectivity and digital updating for a company like this, the sheer number of SKUs out there has to be nothing but a positive story. The consumer is, whether it's online or offline, the ability to definitely use connectivity in the space is key, and it tells the management on top of that. So I think it holds up well for the company.