Redburn Analyst on His Call to Cut Microsoft, Amazon

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00:00Well, we were definitely disappointed by the earnings that we got out of Home Depot.

00:03We thought it was going to be a little bit better.

00:05I think the whole street thought it was going to be better.

00:08The however is that the, you know, the lack of storms, there were no hurricanes in the

00:13third quarter that they did have a few last year to compare against.

00:17That was a big driver, you know, and, you know, there has been a bit of a slowdown in

00:22spending.

00:23But when you look at the underlying trend at the business, it's still about the same.

00:27You know, last quarter, they did probably an underlying, they did a comp of 1%.

00:32Home Depot just said on their earnings conference call, if you adjust for, you know, the storms,

00:37you're probably still at around a 1%, which is what our math had showed us as well.

00:42So, you know, like they didn't do that bad.

00:45I just think the expectation was high heading into it where last quarter they got optimistic.

00:50They said, hey, second half, we feel really good.

00:53We're thinking that trends are starting to improve and you're going to see a bit of a

00:56lift in the second, in the third quarter and the fourth.

00:59They basically had to walk that back today.

01:01And I think that's where there's been a little disappointment and frustration.

01:05But again, you know, they didn't sound too bad.

01:08They're taking market share.

01:09They're executing well.

01:10There's some good things still happening at Home Depot.

01:13If they're taking market share, what does that mean for when we get lows earnings just,

01:17you know, on top of some of the trends you're just talking about, about weather?

01:20Does that mean we're about to get a lot worse from Home Depot's peer?

01:23Well, you know, lows has been underperforming Home Depot a little bit this year.

01:29Numbers have been coming down into the print for lows.

01:33And so after what we saw from Home Depot, we would expect, yes, you're probably going to

01:37see some softer trends out of lows as well.

01:40That being said, the two of them have both been gaining share from a lot of the independents

01:45out there.

01:45I think collectively they have like 40, 45 percent of the market share out there.

01:49So there's still a lot to be had from others.

01:52But yeah, our concern now is that lows could be a little bit soft.

01:57And we'll probably hear similar things where the consumer is buying and they're replacing

02:02products like they replace appliances when they need to.

02:05They're doing small projects.

02:06They're just not doing the big projects.

02:08Well, there had been a narrative emerging again, kind of what you're talking about,

02:11Joe, that the consumer is weak.

02:14But considering the fact a lot of what Home Depot said of the trends that are still improving,

02:19would you push back on that narrative that the consumer isn't getting better, that these

02:24earnings highlight some real stress that still exists out there?

02:28Yeah, I think these earnings do highlight some of the stress consumers have.

02:31I mean, it shows a lack of confidence in taking on a very large project like redoing a bathroom

02:36or a kitchen, which costs a lot of money.

02:38I think people are doing the necessities of upgrading and the repair and maintenance of

02:44a home.

02:45That still happens.

02:46I mean, let's not forget, Home Depot just put up $41 billion of sales in one quarter.

02:51I mean, that's a really big number.

02:52I know everybody wanted more growth, but still, that's a lot of sales.

02:56So people are spending on their homes.

02:58They're doing what they need to.

02:59They're just not spending the way we would like to see.

03:02And you're not seeing that growth that would happen when you have a healthier housing market

03:06and a little bit more confidence in the economy overall.

03:09Well, for the most part, Home Depot has been able to maintain prices, maybe because a lot

03:12of the imported goods arrived before the latest tariff increase.

03:15Joe, does that change at some point?

03:19You know, Home Depot talked a little bit about passing through some prices related to tariffs.

03:23They said that they didn't see too much pressure from it.

03:26It's also a little early.

03:28It also, the quarter was clouded by the storm impact that they didn't have storms.

03:33And so it is a little hard to say.

03:35But we are seeing prices flow through across retail.

03:38I mean, that's for sure.

03:39We do a study and we publish it this morning every Tuesday.

03:42And we've been tracking since April.

03:43We've seen prices come up on a lot of goods across retail.

03:47Some have come down, but the vast majority have gone up and it's tariff related.

03:52And we're assuming that you're going to see that happen continuing into the fourth quarter

03:58and beyond really the first half of next year.

04:00The consumer is going to have to adopt to that.

04:03Joe, as it also relates to politics, Bloomberg columnist Beth Cowett wrote earlier this month

04:09saying that Home Depot has an ice problem, that arrests happening in the parking lot of Home

04:14Depots have become inextricably tied with the company.

04:17And it's a company that's remained silent on it, but shouldn't just because of the workforce,

04:22the day laborers that are so important to the business of Home Depot.

04:25Would you want to hear the company address this more head on?

04:28You know, we've talked to them about it.

04:32I think most analysts and investors have talked to them about it.

04:35The people that ICE is targeting, they're not actually Home Depot employees.

04:42You know, they are day laborers.

04:43They congregate near Home Depot, near Lowe's and other areas where there's a lot of, you

04:49know, high traffic, especially among contractors and pros that are out there.

04:53And so it's just to make it easy because a lot of those pros might need some help for a particular

04:58day and they pick on, you know, some of the day laborers and give them some work.

05:03So it's sort of a bad coincidence that it has to happen there.

05:08And I understand why, you know, that's where the pro goes to shop.

05:10And so they see people and they can help, but they're technically not on Home Depot property.

05:15They're not Home Depot employees.

05:17I know it's not a great look optically, but it's just, you know, it's part of sort of

05:25the nature of how that, you know, worker or laborer operates.

05:31I've seen it in my neighborhood.

05:33I know there's some areas where you can go and you see some day laborers on a Saturday

05:37or Sunday morning waiting to be, you know, picked up.

05:40And, you know, ICE is doing what they're doing.

05:43And I think Home Depot and myself were going to try to stay out of the politics of it.

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