HD Builds Earnings Strength as Investors Remain Wary on Housing Market

anywhere free on Schwab network.com. We're back on Morning Trade live. Let's focus on the five day chart for Home Depot after reporting earnings this morning, because you can certainly see the decline going into the print. And then subsequently a little bit of a pick up some volatility. You could say following the report. We've been a bit up and down today but shares trading higher right now. So let's dig into the numbers and exactly what we learned from this company. Because there's been a lot of concerns about the macroeconomic backdrop. And also of course we've got some information this morning showing that pending home sales didn't look great last month. That all feeds into obviously its operations here. So let's get to Marley Kayden for a look at this one. I mean, the way that I heard it characterized this morning, Marley was it was good because it's been so bad. Just walk us through the details. Good morning Sam. I think that's probably an accurate assessment here. It was better than expected. Good. Might not even be fair. They were good numbers. I mean, it's just the company keeps calling it a frozen housing market and they're not wrong. The housing market conditions haven't changed. If anything with rates, they've worsened. So the fact that they beat is a net positive, which is why we're seeing them bucking the trend of the broader market today. They're up about three quarters of a percent right now because they beat on the top and bottom lines. They also reaffirmed their guidance here. So earnings per share coming in at $4.92. That was about $0.20 better than the expectation revenue coming in at $47.86 billion. That was up 5.7% year over year and also better than what the street was looking for. They saw their comp sales rise 1.7%. That beat the expectation of it being less than 1%. And the CFO added, Richard McPhail, that this was the highest comparable sales number the company has posted since the fiscal third quarter of 2022. Home depot also reaffirmed its guidance, like I mentioned, which includes tariff refunds that they say are expected to partially offset some unplanned fuel energy and other product input costs. And they added that tariff refunds allow them to maintain value despite cost pressures in other areas. Now, the CFO did most of the commentary on the call because the CEO has stepped away for a temporary medical leave. But Richard McPhail saying that Home Depot saw broad engagement across its categories. But the greater uncertainty in the market led the company to reaffirm, rather than raise its guidance on that call, McPhail said the company received $730 million in tariff refunds during the second quarter. He said that that represented the vast majority. That was the term he used of what the company was expecting. They used 685 million of those refunds to reduce the cost of goods sold, with the remaining 45 million sitting in inventory. They said they expect total sales growth for the year to be between two and a half and 4.5% operating margins. They're looking for between 12.4 and 12.6%. And McPhail went on to say the story of the quarter is a share gain with the pro and the consumer, and we're confident that our investments are working to allow us to win in the market. He described the customer as a healthy cohort at Home Depot, but that the company has still not seen any of those customers returning to those big projects. And Sam, as we talked about yesterday, that was a big question mark here. Are we seeing people return to those big home improvement projects, particularly not the pro customer? And he says they're not seeing it, but their results are still holding up. So I think net positive here for Home Depot. Also another net positive. A separate announcement. They announced the nationwide rollout of express delivery. This is really meant to appeal to these pro or on demand DIY customers for a small fleet. They have no subscription cost, no membership required here. They are just going to leverage their supply chain network, and they're going to have 2000 U.S. stores function as hubs to allow this express delivery to make it now the fastest provider in home improvement is what they're saying. So they can get their items in three hours or less is how they're advertising it, including materials and supplies for pro construction projects. And they can view their express delivery eligibility on product pages and in the cart. So another potential driver, they're making lots of changes to try to make the business more profitable and more appealing to bring in more of these customers. But overall. Key takeaways They gained market share in both pro and consumer. They beat on the top and bottom line. They reaffirmed their guidance, which some of the notes I've read seem to be seem to believe that was a conservative move on their part, but that's what they chose to do. And they said they're focused on, quote, controlling what we can control. So probably a good thing right now because the housing market hasn't seen much change over the last several years, and there isn't much Home Depot can do to fix those issues. Right. So they're doing the best they can. I mean, the earnings were okay, as you mentioned. And I think the operational efficiencies that you point out with some of the strategies that they've been coming up with to offset the macro headwinds that seem to be working for them, at least for now, are seeing a pop and shares up 1%. Really appreciate it, Molly, with the details today. Let's trade it now with Tim Bigham, options strategist at pilot AI. Tim, good morning. How would you approach an example trade on HD for us this morning. Yeah. Good morning Sam. And as you and Marley were talking about, not only is the housing market frozen, but the stock price seems to be frozen as of late. Kind of, you know, in this sideways channel 350 or so to the upside, serious overhead resistance. 320 to the downside, major support. So I think the earnings report today, as you alluded to, was, you know, okay, maybe good. Not great. Certainly, you know, puts a little bit of a floor on the stock to offset those headwinds of higher rates and probably slower consumer spending as oil prices bite into that a little bit. So I'm just looking for this sideways sort of slog to continue over the next month or so. Going out to traditional September, selling the iron Condor to 353 double call spread. And at the same time, the 32315 put spread, bringing in about two and a half bucks. So basically a coin flip here, whether or not the stock can have a meaningful breakout or breakdown, I think it will continue to plod along here. You'll certainly get a little whip back and forth, but any meaningful move I think will be muted at best here. The forward guidance and earnings beat should help. At least put a little bit of, you know, a floor in the stock. Further valuations certainly not extreme on Home Depot either. But going forward I think it'll be difficult to get a rip roaring consumer back in play anytime soon. Especially until we get kind of the Iranian situation out of the way, which will put a dent in oil prices. I think that will slow consumer spending, certainly even at Home Depot as well. All right. And obviously we're going to be looking at toll. Up next. We're going to be talking about that one later in the program as well. Tim, really