Home Depot: Strong Q1 Results Overshadowed by Mortgage Rates’ Uncertainty

Home Depot (HD) shares jumped 1.7% yesterday after the biggest home improvement department store in the world posted better-than-expected quarterly results and raised its FY outlook.

Home Depot announced that its Q1 2022 net sales increased 3.8% on an annual basis to $39 billion. Comparable sales increased 2.2% from the same period last year, and the company’s U.S. stores’ comp sales rose 1.7%. Diluted earnings per share (EPS) were up 6% annually to $4.09, with a net income of $4.2 billion, a rise of 2.1% YoY.

The company updated its 2022 guidance expecting 3% total sales growth, a 15.4% operating margin, and EPS percentage growth in "mid-single digits." The company also targets net interest expense at approximately $1.6 billion at tax rate of approximately 24.6%.

"Fiscal 2022 is off to a strong start as we delivered the highest first-quarter sales in company history," CEO Ted Decker said. "The solid performance in the quarter is even more impressive as we were comparing against last year's historic growth and faced a slower start to spring this year."

Although the company remains upbeat on its Q2-Q4 2022 performance, the market didn’t seem to join the BoD’s enthusiasm by lifting the stock by less than 2% whereas S&P 500 added more than 2% for the day. The reason of such a lukewarm reception is that investors are likely extra cautious, eyeing the rapid interest rate growth. That will inevitably incur the mortgage rate hike, which will make homes less affordable for such a wide variety of home buyers seen before. Certainly, such plenty quantity of new homeowners created a very favorable condition for Home Depot’s thriving business, which may see certain headwinds down the road.