Daily Brief: Home Depot’s A Risky Bet, But Potentially A Better One Than Lowe’s

Daily Brief: Home Depot’s A Risky Bet, But Potentially A Better One Than Lowe’s

about 3 years ago3 mins

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Home Depot announced better-than-expected earnings on Tuesday, but investors aren’t sure the home improvement retailer’s winning streak can last.

What does this mean?

Between rising real estate prices and the sheer amount of time everyone has on their hands, home improvement is where the heart is. And that suits Home Depot – whose sales growth is still higher than it was before the pandemic – just fine.

Home Depot domestic same-store sales

But it might prove a double-edged sword, with the company’s next few earnings updates at risk of falling short of the high bar it set for itself last year. And that’s to say nothing of the stiff competition ahead for shoppers’ dollars, when the vaccine rollout leaves DIY projects secondary to out-of-home experiences. That’s making investors nervous that Home Depot’s pandemic gains won’t hang around, which might be why they initially sent the retailer’s shares down.

Home Depot stock
Source: Google Finance

Why should I care?

For markets: A diverse DIY business is a happy DIY business.

At least Home Depot might benefit from the resurgence in sales to plumbers, builders, and electricians, all of whom are more likely to be invited into folks’ homes when vaccines are in full effect. And this is where Home Depot has the edge over close rival Lowe’s: 45% of the former’s sales come from professionals, compared to the latter’s 25%.

The bigger picture: Department stores are back, baby.

Some retailers are already seeing the return to pre-pandemic spending in action: Macy’s, for one, just delivered its first profitable quarter in a year. And there are other signs of life for department stores, with new data showing that January saw the sector’s first sales bump since 2019. Macy’s even reckons its own sales could grow by 20% this year – an encouraging sign, if still 13% below the company’s pre-pandemic target for last year's sales.

Department demand

Keep reading for our next story...

HSBC Posted Better-Than-Expected Earnings

HSBC image

HSBC posted better-than-expected quarterly earnings on Tuesday, but Europe’s biggest bank by assets admitted it’ll need to start wangling its way into Asia’s good books sooner rather than later.

What does this mean?

HSBC has had two big challenges to contend with lately: the bank’s been making less from the money it’s lent to its customers due to ultra-low interest rates, while simultaneously having to set aside enough cash in case those customers couldn’t pay back their loans. And even though last quarter’s election and pandemic-driven chaos drove a surge in investor activity and, in turn, transaction fees, it wasn’t enough to stave off a steep fall in profit from the same time the year before.

So to turn things around, HSBC promised more cost-cutting measures – like additional layoffs – and a focus on faster-growing markets. But it might be a case of seeing is believing: investors sent the bank’s shares down regardless.

In The Red
Source: The Wall Street Journal, FactSet

Why should I care?

Zooming in: Asia might be the place to be.

HSBC makes most of its money in Asia, and that segment of its business looks like it’s about to get even bigger: the firm’s intending to scale down operations in the US and Europe, and invest $6 billion in fast-growing Asian economies. It’ll do that by looking after the wealth of the region’s well-heeled, in hopes it’ll become the go-to bank for the Singaporean, Chinese, and Hong Kong elite.

Asia provided almost all of HSBCs pre tax profit in 2020

The bigger picture: An Asia-centric investment idea.

If you need proof of Asia’s economic acceleration, look no further than the fastest-growing of the bunch last year: Taiwan – which just raised its outlook for 2021 – is expecting its economy to grow at its fastest pace since 2014 this year. That’s mostly down to the combination of a successful coronavirus containment strategy and strong global demand for all the tech products it produces – which add up to more than half its total exports.

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