Home Depot Inc. (HD) stock is not in need of much repair despite reporting a mixed quarter challenged by inclement weather.
Shares of the Atlanta-based specialty retailer were down less than 1% before the opening bell Tuesday after the company reported a beat on top- and bottom-line estimates for the first quarter, but saw same-store sales rise just 2.5%, well below the analyst consensus estimate set at 4.2%.
"We were pleased with the underlying performance of the core business despite unfavorable weather in February and significant deflation in lumber prices compared to a year ago," CEO Craig Menear said.
Analysts expressed mild disappointment with the comparable-store figure at Home Depot, which is a holding of Jim Cramer's Action Alerts PLUS charitable trust.
"We would characterize the HD's results as disappointing overall, but not a big negative surprise," Deutsche Bank analyst Mike Baker said. "The move in the stock today will likely be predicated on seasonal commentary, and if HD can convince investors that it can achieve its reiterated 5% comp for the year."
Menear did affirm guidance and indicated Home Depot expects a swift recovery from the weather-challenged first quarter.
"Looking ahead, we remain excited about the momentum we are seeing with our strategic investments," he said in a statement. "As a result of these initiatives and the current macroeconomic and housing backdrop, today we are reaffirming our sales and earnings guidance for fiscal 2019."
However, analyst Baker remained skeptical on the guidance for comparable-store sales specifically, citing the significant shortfall in the reported quarter.
"Investors will be concerned that the weak 1Q coupled with a tougher 2Q comparison makes it difficult to achieve the acceleration implied in the guidance," he advised clients in a note. "That will likely be a key point of controversy today."
Baker reiterated his "Buy" rating, but clarified that it will be incumbent upon Home Depot management to explain how their targets can be achieved on the earnings call scheduled for 9 a.m. Tuesday.
Oppenheimer analyst Brian Nagel offered management a ready-made explanation for the figures in a note to clients reiterating a more sanguine view of the results.
"A calendar shift and, more importantly, unfavorable weather likely weighed upon comp sales early in the year. Adjusting for these two factors, we expect that comps in the period would have tracked at least +100-150 bps higher," he noted. "Recent data suggest to us that as weather is now turning more spring-like, sales of seasonal products are picking up and should benefit significantly comp sales in Q2."
Nagel set a $215 price target, suggesting significant upside from the stock's marginal pre-market slip to around $190.
"We look favorably upon prospects for Home Depot and its shares," he told clients. "We view HD as well positioned to capitalize upon improving demand trends in the home improvement sector and over time to surprise investors with solid and persistent comp and EPS upside."
The downside may also be defended, as Real Money's Stephen "Sarge" Guilfoyle noted in his analysis of the stock charts ahead of earnings.
"If the shares should respond badly to earnings, I'd like to add a bit," he wrote. "We have already seen $188 support. A poor result would almost ensure a re-test, and perhaps even a test of the 50% retracement level should China end up mentioned as a factor in the earnings call."
To hear if such comments could impact the stock, tune in here at 9 a.m.