Home Depot Warns of Slowing Sales Amid Rising Consumer Caution

LOCAL MARKET COMMENTARY

On the stock market, the Top 40 Index and the All Share Index closed approximately 0.5% higher on Tuesday, ending at 74,033 and 80,956 points, respectively. Despite some economic improvements since the start of the year, economists noted uncertainty in South Africa's job market. The official unemployment rate climbed for the third consecutive quarter to 33.5% in April-June 2024. Additionally, South Africa's total mining output dropped by 3.5% year-on-year in June, following a revised 1.3% increase in May. Santam, a JSE-listed short-term insurer, announced a trading statement indicating a double-digit increase in earnings for the six months ending 30 June 2024.

EUROPEAN MARKET COMMENTARY

European stocks closed higher on Tuesday as investors assessed new economic data amid recent market volatility. In the U.K., wage data showed that pay excluding bonuses grew by 5.4% year-on-year from April to June, the slowest pace in two years. The unemployment rate fell to 4.2%, better than the 4.5% expected by economists. Attention now turns to U.K. inflation data due on Wednesday, the first since the Bank of England cut interest rates by 25 basis points. Economists anticipate the headline inflation rate to rise slightly to 2.3% after holding steady at 2% for two months.

US MARKET COMMENTARY

U.S. indexes closed higher on Tuesday, reaching a near two-week high after weaker-than-expected producer prices fuelled expectations of an interest rate cut by the Federal Reserve in September. In July, U.S. producer prices rose less than anticipated, with a 2.2% year-on-year increase, down from 2.7% in June, indicating that inflation is continuing to ease. Investors are now focusing on July's consumer price index data, due today, and retail sales figures on Thursday, to solidify expectations for a significant rate cut. According to CME's FedWatch Tool, traders now see a 55% chance of a 50-basis-point rate cut, up from less than 50% before the report.

ASIA MARKET COMMENTARY

Asia-Pacific markets were mixed this morning. In Japan, Prime Minister Kishida announced he would not seek re-election as the Liberal Democratic Party leader, expressing support for the incoming leader. In South Korea, the seasonally adjusted unemployment rate dropped to 2.5% in July, the lowest since October 2023. Meanwhile, Japan's business sentiment among manufacturers slightly declined in August, according to the Reuters Tankan survey, with the sentiment index falling to +10 from +11 in July. The non-manufacturers index also dropped to +24 from +26. This decline was attributed to weak demand from China, impacting corporate sentiment, and follows the Bank of Japan's July decision to raise interest rates to their highest level since 2008.

CURRENCY MARKET COMMENTARY

On Tuesday, the South African rand strengthened against a weaker U.S. dollar, despite unimpressive domestic mining and unemployment data. The dollar remained weak this morning after dropping against major currencies overnight. This decline followed a softer-than-expected U.S. producer price report, which strengthened expectations for Federal Reserve interest rate cuts later this year.

COMMODITY MARKET COMMENTARY

Gold remained steady this morning as softer U.S. producer prices fuelled expectations of an imminent interest rate cut, with traders awaiting U.S. inflation data for further insight into the Federal Reserve's next move. Meanwhile, oil prices rose on estimates of declining U.S. crude and gasoline inventories, as concerns over a potential escalation in the Middle Eastern conflict heightened worries about global oil supply disruptions.

Santam Limited (SNT) +4.73%

Santam expects its Headline Earnings per Share (HEPS) and Earnings per Share (EPS) for the six months ending 30 June 2024 to increase by 25% to 45%, reaching between 1 462 and 1 695 cents per share, compared to 1 170 cents per share in the same period in 2023. This growth is due to improved underwriting results in their conventional insurance business and earnings growth in their alternative risk transfer businesses. Despite weather-related catastrophes and large losses, the underwriting margin for conventional insurance is expected to be within the long-term target of 5% to 10% of net earned premiums. Additionally, the Group anticipates satisfactory growth in gross written premiums and expects its economic capital solvency position to remain strong, within the target range of 145% to 165%.

Homechoice International PLC (HIL) +12.90%

For the period ending 30 June 2024, the company reported strong growth driven by an expanding fintech customer base. Revenue increased by 14.6% to R2.0 billion, with fintech revenue rising 31.5% to R1.1 billion. Operating profit grew by 36.1% to R388 million, and 89% of transactions were conducted digitally. Retail sales increased slightly by 1.7% to R0.6 billion, while strong customer collections jumped 32% to R5.2 billion. Earnings per share and headline earnings per share both rose by 37% to 196.9 cents, compared to 143.7 cents in 2023. An interim dividend of 95.0 cents per share was declared, up from 70.0 cents per share last year.

Trencor Limited (TRE) -0.42%

For the six months ending 30 June 2024, the company reported a significant decline in profit attributable to shareholders, dropping to R17 million from R112 million in the same period in 2023. This led to a sharp decrease in basic and headline earnings per share, both falling from 64.8 cents to 9.8 cents. The consolidated net asset value per share increased slightly to 822 cents from 805 cents. Despite this, no dividend was declared, consistent with previous reports.

Home Depot Inc. (HD) +1.23%

Home Depot exceeded quarterly expectations on Tuesday but warned of weaker sales for the remainder of the year due to high interest rates and consumer uncertainty reducing demand. The home improvement retailer now predicts full-year comparable sales to decline by 3% to 4%, worse than the previously expected 1% drop. Total annual sales will get a boost from its acquisition of SRS Distribution, but excluding SRS, the forecast indicates a revenue cut. For the fiscal second quarter ending July 28, Home Depot reported earnings of $4.60 per share, beating the expected $4.49, and revenue of $43.18 billion, slightly above the expected $43.06 billion. However, net income decreased to $4.56 billion from $4.66 billion the previous year, and comparable sales fell 3.3% overall, with a 3.6% decline in the U.S., worse than the 2.1% drop analysts had anticipated.

HelloFresh SE (HFG) +19.30%

HelloFresh reported stronger-than-expected second-quarter core earnings on Tuesday, driven by robust growth in its ready-to-eat (RTE) unit, which led to a 23% jump in its share price. Adjusted earnings before interest, taxes, depreciation, and amortization (AEBITDA) fell by 23% to 146.4 million euros ($160 million) but surpassed analysts' average forecast of 123 million euros. Meal kits continued to be the core of the business, contributing 72% of the quarter's revenue. For the third quarter, HelloFresh expects AEBITDA to be between 30 and 50 million euros, down from 69 million euros a year ago, due to anticipated higher marketing spending during the back-to-school season.

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