VIDEO: Why We’re Questioning Home Depot’s Earnings Claims

Stocks are falling on Tuesday morning as an oil-driven wrinkle creeps back into what’s been a complacent market.

We also have a loaded week of retail earnings, starting with results from Home Depot (HD) and we’re questioning management claim that it’s taking market share.

In this video, Chris Versace also discussed Tuesday’s July reports for Housing Starts and Industrial Production, tying them back to two Portfolio holdings. As part of that conversation, he also shares key levels we’re watching for both of those holdings with an eye to potentially build up our exposure.

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Transcript

Hey everybody, Chris Versace here. It’s Tuesday, August 18th, and as you’ve probably noticed, stocks are moving lower this morning as uncertainty creeps back into what has been an arguably complacent market. We’ve talked about this and shared the data points with you last week, revising some of them earlier this week. Complacent markets tend to get caught off guard by things — and what’s doing it this time? Oil and related prices are back on the rise.

The market is revisiting expectations around the U.S.-Iran situation. We’ve moved past the MOU timeframe between the two countries, and the next phase increasingly looks like one that will, unfortunately, be filled with greater conflict. We’ll continue to track developments on this front, and if we need to position or reposition the portfolio, we will do that.

We’ll also keep an eye on what is and isn’t making its way through the Strait of Hormuz, with an eye toward inflation pressures and supply chain concerns. This week, as we discussed in Friday’s weekly roundup, is a big one for retail earnings. Fortunately, we already went through the July retail sales report, which gives us a set of benchmarks — hurdle rates, whatever you want to call them — by which we can gauge these various reports. As you’ll see, it’s pretty telling.

With that in mind, let’s start the review of retail earnings with Home Depot, first one out of the gate. What did they say? Revenue was up 5.8% year over year. Comp sales increased 1.7% for the quarter that ended August 3rd, a little better than the 0.9% consensus. Comp sales in the U.S. were up about 1.3% during the quarter. However, comparable customer transactions fell 0.4% year over year, while comparable average ticket per customer was up 2.8%, to around $92.50.

More being spent for less — that’s what I hear in that, and it’s another example that inflation pressures remain in place. Home Depot management commented on a “frozen housing market,” but also said the company is taking share. So how can we confirm that or not? Well, year over year, sales rose 5.8% for Home Depot’s July quarter. Getting back to that July retail sales report, when we look at the corresponding line item — building materials and garden sales — for the same three-month period ending in July on a year-over-year basis, it was up 6%. So I’ll take a little issue with Home Depot’s comment that it’s gaining market share.

But let’s stick with Home Depot’s comment about the frozen housing market, because today we also got the July Housing Starts report. It came out earlier today — maybe you saw it, maybe you didn’t — but here’s the thing: the numbers missed expectations, with declines in both multifamily and single-family housing data.

Relative to expectations, that’s what’s key. Here’s the thing: when we look at the numbers, July single-family housing starts were actually up modestly compared to June and to July 2025. We’re also seeing a continued creep-up in the number of single-family housing units authorized but not started — they were up about 9.6% in July alone. However, the number of private housing units under construction continues to fall, with July coming in below March and April, continuing that streak. So we continue to see a mixed message in the housing market. Remember what we’re looking for: we want to see home builder backlogs stabilize, and we want to start seeing a decline in the use of incentives to prompt people into the housing market.

Now, here’s the thing — I don’t think we’re going to see that in the very near term. We do have Toll Brothers reporting later this week, so I expect to hear their comments about incentives and their continued use in the back half of the year. But we do want to keep an eye on mortgage rates, because they help drive affordability. Mortgage rates moving up obviously weighs on affordability and shrinks the pool of potential buyers. So where is the national average? According to data from Freddie Mac, as of mid-August — specifically August 13th — the rate was somewhere between 6.67% and 6.72%. What does this mean? The move up we’ve seen in Treasuries tells us that mortgage rates next week, when we get the next update, are likely to be even higher.

In terms of our small position in shares of Builders FirstSource, we are down a little bit, nothing dramatic. But as I shared during yesterday’s office hours, if the shares were to bottom out again near $65, like they did in May and July, that would be a nice level for us to grab a few more shares for the portfolio. Remember, our play here with Builders FirstSource isn’t about the next quarter or two — it’s about where the housing market is likely to be in the next 12 to 18 months. So we’ll continue to watch the data. To the extent we see home builder backlogs stabilize, the use of incentives fall and no longer be a factor, and pricing in the home builder backlogs improve, those are signs that will tell us it’s time to get a little more aggressive with Builders FirstSource shares. For now, we’re inclined to continue building up our position over time, and we’ll keep an eye on our checkpoint level for Builders FirstSource shares.

Today we also received the July industrial production data, and in that we have to sift through what it says about mining activity and utility activity — which, yes, was very strong in July. Think about the hot temperatures we had to deal with; no surprise utility output was up. But from our perspective, we want to focus on manufacturing activity, as it relates to our position in shares of truck maker PACCAR. The reasoning: the more manufacturing activity there is, the more things need to move — which also means we’ll continue to track rail traffic data and truck tonnage data.

So what did the July Industrial Production report have to say about manufacturing activity? On a year-over-year basis, it was up 1.2%. On the one hand, that’s down a little from what we saw over the past three months, but it’s the fourth consecutive month of more than a 1% year-over-year increase. This tells us activity continues to improve, and it supports the data we’ve seen on the manufacturing economy in the last several ISM reports and their monthly PMI read on manufacturing activity. So activity is picking up, and that will help keep the heavy truck industry tight in terms of capacity.

Remember, with our position in PACCAR, the play here is twofold: tight truck capacity and the need for more trucks to improve that capacity, along with the pending EPA mandate on engine emissions, which should pull forward truck demand. That’s our one-two play with PACCAR shares. We know heavy truck industry orders have accelerated and the number of slots for 2026 are falling. What does this mean? It tells us pricing power in the truck industry is improving, and that bodes well not only for pricing in PACCAR’s backlog but for margins in the coming quarters.

Now, along with the rest of the market, we are seeing shares of PACCAR trade off, and yes, we do have room to add to the portfolio’s position. The next layer of support for PACCAR shares is around $125, a little lower than where it is today. And similar to our comments yesterday on Netflix, as well as our comments earlier today — just a few minutes ago — on Builders FirstSource, we have a number of levels to watch while we also keep an eye on the market and its own technical setup.

With that, my friends, I’ll just say we have a lot more coming your way — a lot of things to keep our eyes on, a lot of retail earnings coming this week, including results from portfolio holding TJX. So please keep a watchful eye on your emails; we want to make sure you’re getting our latest thoughts. There’s a lot happening this week, and if we make any moves with the portfolio, we want you right there with us. Thanks for watching.