Home Depot beats on Q2 earnings

Yahoo Finance Live anchors discuss second-quarter earnings for Home Depot.

Video transcript

BRAD SMITH: From one retailer to another that we're tracking here this morning-- shares of Home Depot are moving this morning after beating on earnings, as sales grew 6 and 1/2% year-over-year. Just taking a look at the stock price there. It's down right now by about 1%, just a little bit more than that.

There, you're taking a look at some of the actuals versus the estimates that we've been tracking for ticker symbol HD. And particularly here, even as we look through the data that Home Depot had put out there, they are saying that they delivered the highest quarterly sales and earnings in their company's history, but they also spent more to get that record level of sales as well-- it's important to note. They also reaffirmed their fiscal 2022 guidance in the process.

BRIAN SOZZI: It always-- amazes me, quarter after quarter, no matter the environment, outside of the housing crisis, how well run Home Depot is. Look, their operating margins were up probably like 40 basis points in this most recent quarter. Even despite high levels of inflation, higher wages for workers. They were able to push that through, which is a win.

Now, Home Depot told me via email they-- most of its departments-- most of their departments, they did see strength in terms of sales, but their seasonal business underperformed their expectations. So when seasonal-- barbecues-- look what we've heard from Weber, Traeger. A lot of the seasonal categories that sell into Home Depot and then Lowe's, I imagine, when we hear from them later in the week on their earnings, those underperformed estimates.

Now, the good thing with Home Depot, they can pack that stuff away and sell it the next year. A grill is a grill.

JULIE HYMAN: Yes, that's a good point, actually. You don't have much innovation maybe in some of those--

BRIAN SOZZI: Project-related categories outperform estimates, so that's the pro/cons to customer, the contractors, which is interesting and something I have to look a little more deeper into because we've seen a slowdown in housing with those housing numbers out this morning.

JULIE HYMAN: We have seen a slowdown in housing, but the projects are ongoing and were backed up. So it doesn't necessarily mean you would see a slowdown in the project. That might operate on a lag because-- I mean, you talk to anybody-- and I myself am undergoing a home improvement project as we speak-- but a lot of people had their projects delayed because they couldn't get the materials.

So that might be something that will continue to help Home Depot for a little longer here. I keep paying attention to the differential between the revenue and the traffic, right. This is something we heard from Home Depot last quarter. Average customer ticket was up 9%. Number of customer transactions down 3%.

So there were fewer ring-ups at the register, but because of price increases, you are seeing a higher amount of revenue per customer. By the way, inventories, which we keep watching everywhere, up 38% at HD to about $26 million.

BRIAN SOZZI: Yeah, well, I helped their inventory in the most recent quarter. I bought these new smart bulbs. Yeah, light bulbs. Yeah. You put them into your-- put them into your lamp, they control-- you can control them with your phone. Has, like, 15 different colors.

So I get home every Friday, I put on that the light pink for relaxation, it's called. It's great.

JULIE HYMAN: Yeah, but isn't that annoying to have to go to your phone instead of just hitting a switch on your wall?

BRIAN SOZZI: Well, I also-- I hooked the lights up to Amazon Alexa. So I go home, and I say, "Amazon, Alexa, turn on living room lights." They pop on and have that nice relaxation color. It really brings me down to a good mood.

JULIE HYMAN: Interesting.

BRAD SMITH: Maybe they have some outdoor versions of that, too, I would imagine.

BRIAN SOZZI: I'll send you the links.

BRAD SMITH: Just briefly here, as well-- because when we do look at the DIY projects, and even some of the more corporate contracts and customers that they have, the business customer that Home Depot has, it also takes us back outside as well. Think about John Deere, think about ScottsMiracle-Gro-- some of the more cyclical segments that they can count on year after year after year.

Seasonality-wise, it's going to be a larger question of-- if it's the same way that we were talking about GRR and the grill replenishment rate-- if you have a mower, do you need another one next year?

BRIAN SOZZI: That's a good one, the grill replenishment rate.

BRAD SMITH: And I think that's a significant question of how much they lean into even more marketing based on the more cyclical elements of some of their business.

JULIE HYMAN: Right. That's the stuff that I think will be more timely and closely correlated to housing, right, because that's not operating on a lag. You buy a new house. You've got a big lawn. You buy a lawn mower.

BRAD SMITH: Right.

JULIE HYMAN: But if those projects do back up.