Analyst on Home Depot’s Q2 results: “there will be a time to buy the stock”

Home Depot Inc (NYSE: HD) reported market-beating results for its fiscal second quarter on Tuesday. Shares of the company, however, tanked about 5% this morning as same-store sales missed estimates.  

Second-quarter financial performance

Home Depot said its net income in the second quarter printed at $4.81 billion that translates to $4.53 per share. In the same quarter last year, its net income was capped at $4.33 billion or $4.02 per share.

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The home improvement retailer posted a record $41.12 billion in sales that represents an annualised growth of 8.1%. According to FactSet, experts had forecast $40.63 billion in sales on $4.45 of EPS.

Also on Tuesday, peer Walmart also reported its quarterly results.

Comparable sales and other notable figures

Home Depot said its comparable sales jumped 4.5% versus 5.4% expected. In the U.S., its same-store sales climbed by 3.4% compared to the FactSet consensus of a 5.1% increase. Other notable figures include a 9.3% increase in the cost of sales and a decline in gross margin to 33.2%.

The largest home improvement retailer in the U.S. saw a 5.8% decline in transactions but an 11% year over year growth in average ticket size. Home Depot extended its Google cloud deal last month to further benefit from the Coronavirus-driven boom in eCommerce.

Brian Nagel’s remarks on CNBC’s “Squawk Box”

On CNBC’s “Squawk Box”, Oppenheimer’s Brian Nagel acknowledged that Home Depot was a big COVID winner that continues to note positive comparable sales, but a slowdown was significant as the pandemic-related restrictions eased in recent months, letting people go out more. In his interview, he said:

“Home Depot is a great company, and there will be a time to buy the stock aggressively. But for now, the market is not prepared adequately for what’s likely to be slower sales at Home Depot over the next few quarters as comparisons get even more difficult and the U.S. economy continues to pull farther away from the pandemic.”

On top of challenging comparisons and post-pandemic normalisation in spending, Nagel sees supply chain issues as another headwind for the home improvement retailer.