TRG | The Bottom Line – 5/19

This week the National Association of Home Builders (NAHB) Housing Market Inex (HMI) came in better than expected at 50, signaling a more optimistic outlook from home builders. May’s reading was 5 points above April’s 45, the highest read in ten months and the fifth consecutive month of improved builder confidence. Against this backdrop, Home Depot (HD) also reported Q1 results this week, and despite a lowered FY’23 guide, the stock was virtually unchanged this week and is essentially at the same level versus a year ago. Impacting Q1 HD results included lower lumber prices and inclement weather pressuring sales in California. Notably, in geographies with better weather, spring-related categories were fairly strong. Transactions declined 5% YOY, while ticket was flattish. Lower commodity prices (primarily lumber) were a ~335 bps headwind to ticket. Demand stepped down starting in the prior quarter, and this lower demand profile sustained into Q1. Big-ticket discretionary sales declined 7%, but project-related categories that are often used by Pros (building materials, millwork, plumbing, and hardware) comped positively, with 10 of 14 product categories negative. For the quarter, U.S. monthly comp decline was 4.6%, with February -2.8%, March -7.5%, and April -3.7%. Management stated that demand in the first two weeks of May aligned with the guidance provided (down 2-5% YOY), and that the next few weeks will be enlightening for the year as these are the largest selling weeks. While the residential read this week wasn’t a resounding win, it also showed some signs of incrementally “less bad” themes.